CONSTRUCTION PROFIT FADE: WHAT IT IS, HOW TO STOP IT.
Profit fade is when a job's actual gross margin drops below the estimated margin as the work progresses, usually found too late to fix. For subcontractors it's caused by unbilled change orders, labor overruns, and optimistic cost to complete estimates, and it appears on the WIP schedule as shrinking projected profit month over month.
A job gets bid at 25% gross margin and closes at 11%. Nobody sat down and decided to give away 14 points. The margin leaked a little each month until the closeout number was a fraction of the estimate, and that's one of the most common ways a busy subcontractor stays poor. The loss doesn't come in one event. It comes through extra work built and never billed, hours running past the bid with nobody checking weekly, and a cost to complete that stays hopeful until the job is done. Working harder doesn't fix it. Seeing it while the job still runs does.
WHAT IT MEANS.
Profit fade is the gradual reduction of a project's gross profit between the original estimate and final completion.
Profit fade is invisible to a profit and loss statement and obvious on a WIP schedule. The P&L averages every job together, so a fading job sits inside a total that still reads fine. The WIP schedule compares projected margin to the estimate job by job, which is why fade turns up there first and turns up nowhere else.
WHERE THE MARGIN GOES.
Unbilled change orders
This is the most common cause of the three. Conditions change, the field does the extra work to keep the job moving, and the change order never gets written or never gets signed. That labor and material is real cost the estimate never carried, and it comes straight out of margin. On change heavy work it's the single largest source of fade.
Labor overruns
Labor is the line that moves fastest and gets watched least. Without a weekly cost to complete by phase, a crew can run 20% over on hours for a month before anyone notices, and by then the margin on that phase is gone. Tracking dollars and hours against the budget every week is what catches it in time.
Optimistic cost to complete
When the person responsible for the job financials fills out the cost to complete, the natural pull is to assume the rest of the job goes to plan. It rarely does. An honest line by line cost to complete, asking what percent complete you're and how much is left to spend, surfaces the fade early instead of hiding it until the end.
WHAT IT LOOKS LIKE IN DOLLARS.
A job bid at 25% gross margin that finishes at 11% has faded 14 points. Nobody authorized that. It leaked a little at a time across the months the job ran, and the closeout number came in at a fraction of what the estimate promised.
STOP THE FADE WHILE IT IS RUNNING.
Every active job running longer than a couple of months gets a cost to complete every week, line by line. That's the report that catches a phase running hot while there are still weeks of work left to change something. Fade found weekly is a decision you get to make, and fade found at closeout is an autopsy.
Projected margin gets compared to the bid margin and to what the same job projected a month ago. Two declines in a row is fade, whatever the reason turns out to be. The comparison is what turns a soft number into a question somebody has to answer out loud.
Every time conditions change, the change order gets written first and the work gets built second. On change heavy jobs unbilled changes are the single largest source of fade, so the writing discipline removes the biggest cause outright. The field keeps moving either way, and the paperwork just stops being optional.
Labor gets tracked in dollars and in hours against the budget, broken out by phase rather than carried as one top line bucket. Hours catch a productivity problem and dollars catch a rate problem, and they aren't the same problem. A single blended labor line hides both of them until closeout.
Once a month the PM team presents cost to complete on every active job to leadership. A fading job then surfaces as a question in the room instead of as a closeout surprise six months later. The whole system is fully operational in 60 days for subcontractors doing $1M to $12M.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
Pricing
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
FREQUENTLY ASKED.
