Contractor Finance Glossary
What is Profit Fade?
Also called: margin fade, fade
Profit fade is when a job's estimated profit shrinks as the job progresses, usually because the estimated cost to complete was set too low. A WIP schedule catches it early by tracking estimated cost at completion each period.
Fade is dangerous because it is invisible until the job closes unless you are watching for it. A job bid at a healthy margin can erode month over month as the real cost to complete climbs, and by the time it shows up in the final numbers, it is too late to reprice or re-scope.
The defense is a monthly WIP schedule that re-estimates cost at completion for every open job. When the estimated cost creeps up, the earned margin drops, and you see the fade while you can still act on it, tighten scope, control cost, or price change orders before the profit is gone.
How it is calculated
Profit fade = original estimated job profit minus current estimated job profit (current contract value minus current estimated cost at completion). Track the trend across periods, not a single snapshot.
Related reading
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