The short answer
Margin fade is the gap between the gross margin a job was priced at and the margin it actually makes by the end. In a business that quotes, makes, delivers and installs, most of it happens after the job is won, through rework, return visits, supplier errors, changes absorbed instead of priced, and work that never gets invoiced.
By Euan Pallister, Operations & Quality Improvement Consultant. Published on .
How to measure it
You can only manage fade you can see. For every closed job over the last year, put two numbers side by side:
- Quoted margin: the gross margin in the price you won the job at, after any priced variations.
- Final margin: the gross margin the job actually made, once every cost booked to it is in, including remakes, return visits and replacement parts.
The difference is the fade. Then sort by it. The jobs at the top of the list will tell you more about your business than any average.
Two practical points make the comparison trustworthy:
- Book the after-costs to the job. If remakes, return visits and supplier replacements go to overheads, the final margin looks better than it is and the fade hides.
- Separate priced variations from absorbed ones. A variation the client paid for raises the quoted margin. A change you swallowed is fade.
A worked example
This is an illustration with round numbers, not a client’s figures.
| Value | |
|---|---|
| Contract value | £120,000 |
| Quoted gross margin | 30% (£36,000) |
| Remakes after a survey error | £3,200 |
| Two return visits for missing items | £900 |
| Supplier faults absorbed | £1,400 |
| Client changes absorbed, not priced | £2,800 |
| Delivered extras never invoiced | £1,100 |
| Final gross margin | £26,600 (22.2%) |
The job faded by nearly 8 points. None of those costs is unusual on its own, which is exactly why fade is easy to miss.
The five usual causes
Rework and remakes
The most visible cause, and still underestimated, because rework logs rarely capture the full cost. See what rework really costs.
Return visits
Going back to site for missing items, snags or adjustments. Each one costs a van, a team and a day that could have been spent on the next job. See what a return visit really costs.
Supplier errors
Faults the supplier made, or that started with your own order, which you paid to put right. See how to recover the cost of a supplier’s mistake.
Changes absorbed instead of priced
Proving a change feels harder than giving it away, so it gets given away. A release point for each area of a job, after which every change is priced and re-drawn, stops most of this.
Work delivered but never invoiced
Extras fitted on the day, agreed verbally, and forgotten by the time the final account is done. A simple site record of anything added, signed by the client, fixes most of it.
Where to start
Measure the fade on last year’s jobs, then rank the causes by cost. Most businesses find two or three causes make up most of the gap. Our map of where margin leaks shows the twelve stages from quote to invoice where it usually starts, and the cheap fix that tends to work first at each.
If you’d like help reading your own jobs, the free Margin Leak Review takes about an hour, with a sample of your records.
Quick answers
What is margin fade?
The difference between the gross margin a job was priced at and the gross margin it makes by the end. A job quoted at 30% that finishes at 22% has faded by 8 points.
Is margin fade the same as underpricing?
No. Underpricing is a mistake at the quote. Fade is what happens after a correctly priced job is won. They need different fixes, so measure them separately.
How much margin fade is normal?
There is no reliable published benchmark for UK project businesses. Track your own fade by job type over a year and work on the biggest gaps first.
What causes most margin fade?
In businesses that quote, make and install, the usual causes are rework and remakes, return visits, supplier errors, client changes absorbed rather than priced, and delivered work that is never invoiced.