Backlog and Current Earnings

How architecture firms measure and monitor backlog (contracted but unearned revenue) alongside current earnings to assess financial health, forecast workload, and make staffing and business development decisions.

ARE · Practice Management

Overview

Backlog is the total dollar value of signed contracts minus what you've already earned. Think of it as your firm's pipeline of guaranteed future work. Current earnings, on the other hand, represent the revenue your firm has actually earned through completed services during a given period.

Why does this matter for the ARE? Because NCARB expects you to evaluate a firm's financial well-being, and backlog is one of the clearest signals of where a firm stands. A firm with twelve months of backlog sleeps well. A firm with two months of backlog is scrambling.

The relationship between these two numbers tells you more than either one alone. High backlog with low current earnings might mean your projects are stuck in early phases and revenue hasn't ramped up yet. Low backlog with strong current earnings could signal that work is finishing faster than new contracts are coming in. Both scenarios demand different management responses.

You'll also need to understand how backlog quality matters. Not all backlog is created equal. A backlog heavy with schematic design fees has a different risk profile than one loaded with construction administration work. Phase distribution, client concentration, and contract type all affect how reliable that backlog figure really is.

For the PcM exam, expect questions that ask you to interpret backlog data and make recommendations about staffing, business development priorities, or financial strategy. Calculating months of backlog and connecting it to firm decisions is squarely in this objective's wheelhouse.

Essential

What Backlog Actually Means Backlog is the dollar amount of work your firm has under contract but hasn't yet earned through completed services. Here's the simplest way to think about it: Backlog = Total Contracted Value - Revenue Earned to Date Say your firm has $2 million in signed contracts across all active projects. You've completed and billed $800,000 worth of work so far. Your backlog is $1,200,000. That's the work still ahead of you, already promised by a signed agreement. Some firms call this "work in hand." The calculation is the same: Contract Amount minus Billed Amount. Whatever terminology shows up on the exam, the concept is identical. ## Current Earnings and How They Differ Current earnings represent the revenue your firm has earned during a specific accounting period. Under accrual-basis accounting, revenue is recognized when the service is performed, not when payment lands in your bank account.

Professional

Scenario: Reading the Signals at a Midsize Firm Consider a 30-person architecture firm with $4.2 million in backlog. Average monthly revenue is $350,000. That puts them at 12 months of backlog, which looks solid on paper. But the managing principal digs deeper. Of that $4.2 million, $2.8 million belongs to a single healthcare client's campus expansion. That's 67% client concentration. If the healthcare system pauses its capital plan (which happens frequently in that sector), the firm's comfortable 12-month runway shrinks to roughly 4 months overnight. The response here isn't panic. It's strategic diversification. The firm should maintain the healthcare relationship while actively pursuing other market sectors and clients to spread risk. A target of no single client exceeding 25% of backlog would be a reasonable internal benchmark.

TLDR

Backlog = Total Contracted Value minus Revenue Earned to Date. It's the dollar amount of signed work you haven't done yet.
Current earnings = revenue recognized in a given period under accrual-basis accounting (when work is performed, not when cash arrives).
Months of Backlog = Total Backlog / Average Monthly Revenue. This is the metric firm leaders track most closely.
Healthy firms typically carry 6-12+ months of backlog. Under 3 months is a red flag.
Backlog quality matters: check phase distribution (later phases are more reliable), client concentration (no single client above 25-30%), and contract type.
WIP (Work in Progress) is work done but not yet invoiced. It's a balance sheet asset. Don't confuse it with backlog, which is work contracted but not yet done.
High backlog plus low profitability just means you're losing money faster. Volume doesn't fix bad margins.
Backlog decreases as revenue is earned. It's not a static number.
The exam will test whether you can interpret backlog data and make strategic recommendations, not just calculate it.

ELI5

Think of your architecture firm like a kid with a lunchbox and a lunch account. Your current earnings are the sandwiches you've already eaten today. That food is gone, used up, and you got the energy from it. For a firm, that's the work you've already completed and can count as earned revenue. Your backlog is the money still sitting in your lunch account. You know it's there, it's committed to buying lunches, but you haven't spent it yet. For a firm, that's the total value of contracts you've signed minus the work you've already done. Now here's where it gets interesting. If your lunch account has enough money for 10 more lunches, you're feeling pretty good. That's like having 10 months of backlog. You can relax, plan ahead, maybe try something new from the menu.

AREPractice Management

Backlog and Current Earnings

2 min read243 words

Backlog and Current Earnings: Your Firm's Financial Crystal Ball

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