GUIDE 04 / PROFIT ESTIMATION
Find the room your project needs.
Revenue is the amount coming in. Profit is what remains after the costs you include. Understanding that distinction helps you assess a proposal without being distracted by its headline value.
PlanForge subtracts labor, materials, and additional expenses from expected revenue. Its margin is that estimated profit divided by revenue, expressed as a percentage.
Know what your profit figure includes
A project estimate is only as complete as its cost inputs. If your labor rates exclude overhead and you add no overhead expense, the remaining amount still needs to cover those business costs. Calling it final net profit would be misleading. Tax, financing, and other omitted costs can also reduce the eventual result.
Choose a consistent method across projects and describe it in your supporting notes. For example, say whether your hourly rates include an operating-cost allocation. The calculator cannot infer the contents of a rate. A transparent definition makes comparisons more useful than an apparently attractive percentage alone.
Margin and markup use different denominators
Margin compares profit with revenue. Markup compares profit with cost. Because the denominators differ, the same project has different margin and markup percentages. Confusing them can lead to a selling price that falls short of your intention.
| Measure | Calculation | Result |
|---|---|---|
| Project cost | Labor + materials + expenses | £800 |
| Revenue | Assumed client fee | £1,000 |
| Profit | £1,000 − £800 | £200 |
| Margin | £200 ÷ £1,000 | 20% |
| Markup | £200 ÷ £800 | 25% |
To calculate revenue for a chosen margin, divide cost by one minus the margin expressed as a decimal. For example, £800 divided by 0.8 produces £1,000 for a 20% margin. This is arithmetic, not evidence that the market will accept that price.
Establish the break-even point
Within the model, break-even revenue equals total entered cost. That is a useful reference, but not necessarily an acceptable quote. You may need room for risk, reinvestment, business overhead, and compensation not already included. A project can break even in the tool while still being unattractive for the business.
If revenue is zero, PlanForge shows no margin percentage because division by zero is undefined. If costs exceed revenue, estimated profit and margin become negative. Treat that as a prompt to review scope, effort, purchasing, or price rather than simply changing inputs until the result looks positive.
Compare scenarios before committing
Start with a base case that reflects your best current understanding. Then consider what happens if a difficult task takes longer, a supplier cost rises, or another review round is needed. Change one assumption at a time so you can see which factor drives the result.
Export the baseline before editing, because PlanForge has one active project and no automatic scenario history or import feature. Keep a small comparison table in your usual notes. The purpose is to understand exposure, not to generate a precise probability of success from uncertain inputs.
Do not confuse profit with cash flow
A profitable project can still require cash before the client pays. Materials may need ordering upfront, subcontractors may invoice early, and approval delays can postpone a milestone payment. The calculator does not schedule invoices, payments, credit terms, or bank balances.
Review payment timing separately. Deposits and milestone payments can help align incoming cash with delivery commitments, subject to the agreement and applicable law. Consider refund obligations and supplier cancellation terms too. A margin percentage does not tell you whether the project can fund its next purchase.
Use the result to improve the conversation
If the proposed budget cannot support the full scope, offer a smaller deliverable, a phased approach, or a different service level. Explain what changes rather than quietly reducing review time or assuming unpaid effort. A clear trade-off protects both the project and the working relationship.
Revisit estimated profit as the plan changes, but keep actual financial records separately. PlanForge provides a decision-support estimate, not audited accounts, a tax computation, or a guarantee of earnings. Ask a qualified professional when a pricing or accounting decision depends on your particular legal and financial circumstances.