A project stops being profitable on the day its extra costs use up the profit in its price. Every day a project runs past its plan costs your business money to stay open, even when you can’t bill for it.
Know the profit in the price and what one extra day costs you, and you’ll know your project’s last profitable day before the work starts.
You quote a 20-day project at $42,000, with $10,000 of profit built in. On day 20, the work isn’t finished. The client is still waiting on a final approval, and two of your team are still on it.
Day 21 wasn’t in the price, but it still costs your business money. The project keeps holding its share of rent, software and salaries, and the team on it is now doing work no one is paying for. Say that share is $1,000 a day. Day 21 costs you $1,000 of your profit, and so does day 22.
When does the profit run out?
With $10,000 of profit in the price and $1,000 a day of running costs, the project can run 10 days past its plan before the profit is gone. From day 21 to day 30, the business pays for those extra days out of its profit. From day 31, it pays for the work out of its own pocket.
- Day 20Planned finish. $10,000 of profit in the price.
- Day 25Five extra days. $5,000 of profit left.
- Day 30Ten extra days. Nothing left.
- Day 31The business starts paying out of its own pocket.
The invoice stays the same.
But the profit doesn’t.
Why it’s hard to see while it’s happening
Because nothing on the invoice changes. The client pays the same $42,000, so revenue looks fine. The cost of the extra days doesn’t arrive as one bill. It’s spread across the month’s rent, payroll and software, so it never shows up against the project that caused it.
If other projects are running at the same time, their cash covers the gap. Rent gets paid, payroll goes out, and nothing looks wrong. Simply put, that cash came out of the profit from your other projects.
When this client finally pays, the money just refills the gap. That’s why the bank balance stays low, even when the invoices get paid.
On a fixed fee, every day past the plan comes straight out of the profit, as Day Rate or Project Fee: Which Protects Profit Better? sets out.
It matters more than it looks. The median small business holds about 27 days of cash, according to the JPMorgan Chase Institute, so a few projects running past their plan at the same time can tighten cash well before anyone spots the cause.
What you should know before the work starts
- The profit in the price, as a dollar figure, not a percentage you hope for.
- What one day of the business costs, so you know what every extra day takes from that profit.
- The project’s last profitable day: the planned finish, plus the days the profit can absorb.
Write that day on the project plan. As the date approaches, that’s your signal to act: prompt the team to wrap up, or chase the client for whatever is holding the work up.
The plan tells you when the work should finish.
The profit tells you when it has to.
Know your last profitable day before you quote
Profit Pilot shows how many days each project can run before it starts costing you, so you can price, plan and talk to clients with the numbers in front of you.
See How Profit Pilot WorksFrequently Asked Questions
How do I know when a project stops being profitable?
When the cost of the days it runs past its plan has used up the profit in its price. Know the profit and what one day of your business costs, and you can see that day coming.
What does an extra day on a project cost?
The share of what it costs to keep your business open for a day: rent, software, salaries and other running costs, whether or not you can bill for it.
Doesn’t the protected price cover projects that run over?
No. Protection is for the costs no single client causes, like marketing, a reserve and the unexpected. Days a project runs past its plan come out of the profit.
Is a project that runs over always unprofitable?
No. It stays profitable until the extra days have used up its profit. After that, the business pays for the work.
Is a fixed fee riskier than a day rate?
On a fixed fee, the business absorbs every day past the plan. On a day rate, the client pays for them. Which protects profit better depends on how predictable the work is.
This article is general information for business owners, not legal, tax or accounting advice. Rules vary by state and by business structure, so check with your CPA, tax advisor or attorney before acting on anything here.
About Creative Profit Solutions
Creative Profit Solutions works with owner-led businesses to close the gap between their pricing and their operational reality, so more of the profit in every quote ends up as cash in the bank.
Founded by Temi, whose background spans accounting, operations and white-label apparel manufacturing, it gives owners experiencing cash flow pressure, operational chaos and founder overwhelm the structure to plug hidden profit leaks and keep more of what they earn.
