Profit Fade Definition

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

1. Underestimated labor or material costs – Poor forecasting can lead to losses.
2. Unexpected delays – Prolonged schedules increase overhead expenses.
3. Change orders without cost recovery – Failing to renegotiate changes can erode profits.

Preventing Profit Fade

To maintain profitability, contractors should:

1. Regularly compare estimated vs. actual costs.
2. Adjust pricing strategies to account for cost changes.
3. Improve project forecasting and cost tracking.

FAQs

Can profit fade be recovered?

A: Yes, by adjusting labor costs, renegotiating Supplier rates, or improving efficiency.