Contractor field notes
Compare estimated and actual construction job profit
A contract’s revenue is not its profit. Add direct labor, materials, subcontractors, equipment, and other costs, then account for allocated overhead. Comparing the estimated and actual totals shows how cost changes affect the job’s modeled net profit and margin.
Job profit and margin formulas
Direct cost = sum of entered direct-cost categories. Gross profit = contract revenue − direct cost. Modeled net profit = revenue − direct cost − allocated overhead. Net margin = net profit ÷ revenue × 100.
Worked example
For $50,000 revenue, estimated direct costs of $35,000 and overhead of $5,000 leave $10,000 estimated net profit, or 20%. If actual direct costs rise to $38,000 with the same overhead, actual net profit is $7,000, or 14%. Profit has fallen $3,000 and actual direct costs are $3,000 over the estimate.
Common estimating pitfalls
- This job-level net profit includes only entered costs and allocated overhead.
- Compare the same scope and recognized contract revenue in the estimated and actual columns.
Frequently asked questions
How is gross profit different from net profit here?
Gross profit subtracts entered direct job costs. Modeled net profit also subtracts the entered overhead allowance; other omitted company expenses are not included.
Can a job show negative profit?
Yes. If direct costs and overhead exceed revenue, the model shows a loss and a negative net margin.
Should approved change orders be included?
Include them consistently in contract revenue and corresponding cost records when they belong to the scope being analyzed.