How job profit is calculated
- Revenue = contract price + approved change orders.
- Gross profit = revenue − direct job costs (materials, labor with burden, subcontractors, equipment and other job costs).
- Gross margin = gross profit ÷ revenue.
- Profit fade = estimated gross profit − actual gross profit. It shows how much profit slipped away between the estimate and the finished job.
- Net profit on the job = gross profit − the job’s share of overhead.
Why compare estimate to actual
A job can finish with a positive gross profit and still be a problem if it earned far less than you bid. Comparing each cost category shows where the money went: materials that cost more than quoted, labor hours that ran over, or a sub that billed extras. That’s the information you need to fix the next estimate.
Do this for every job, not just the ones that felt bad. Patterns show up across jobs: one type of work that always runs over on labor, or a crew that consistently beats the estimate. Our job costing guide explains how to set up your books so the numbers are ready when the job closes.
Don’t forget labor burden and change orders
Field labor should include payroll taxes, workers’ comp and benefits, not just wages. The labor burden calculator shows the difference. Change orders should add both revenue and the extra costs they caused. Unbilled change-order work is one of the most common reasons profit fades.
Common questions
What is profit fade in construction?
Profit fade is the drop between the gross profit you estimated and the gross profit you actually earned on a job. Some fade is normal; consistent fade in the same cost category points to an estimating or field problem.
What is a good gross margin on a construction job?
It depends on your overhead and trade. Your jobs need a gross margin high enough to cover overhead and leave a profit. The overhead rate and break-even calculators show what your business needs.
Should overhead be included in job profit?
Gross profit leaves overhead out, which makes jobs easy to compare. Adding an overhead allocation shows whether a job truly made money for the business.
This calculator gives estimates for general planning. It isn’t tax, legal, lending or accounting advice for your specific situation, and lenders may calculate figures differently.