Profit fade occurs when a project’s final profit margin is lower than originally estimated due to cost overruns, mismanagement, or unforeseen expenses.
Causes of Profit Fade in Construction
- Underestimated labor or material costs – Poor forecasting can lead to losses.
- Unexpected delays – Prolonged schedules increase overhead expenses.
- Change orders without cost recovery – Failing to renegotiate changes can erode profits.
Preventing Profit Fade
To maintain profitability, contractors should:
- Regularly compare estimated vs. actual costs.
- Adjust pricing strategies to account for cost changes.
- Improve project forecasting and cost tracking.
Related Terms: Cost Overruns, Contingency Budget, Value Engineering
FAQs
Can profit fade be recovered?
A: Yes, by adjusting labor costs, renegotiating Supplier rates, or improving efficiency.