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Avoid the Gross Profit Rollercoaster

In this interview, Diane and Dave Sullivan (host of The Roofer Show podcast) dive into what Diane calls the “Gross Profit Rollercoaster.” They explore why ‘highs and lows’ happen in a business (when the numbers aren’t lining up), and how to avoid those ups and downs.

Why this matters to you: As Dave says, “You can sell all the work you want, but if you’re not pricing your work correctly (because you don’t understand your costs or you don’t understand your numbers), you could just be losing money faster and faster!

The goal is simple – as a business owner, you need to be able to match your income and the cost of producing that income.

For example – some people have jobs that last two months, and some people have jobs that last two years. Regularly checking and revising your estimate over the life of the job allows you to keep the income and costs proportional (in relationship to each other). That means you can see what you’re truly earning over the life of a job!

How can you meet that simple goal? Watch and listen to this podcast interview to learn how to avoid the “Gross Profit Rollercoaster” and keep your Gross Profit percentage level throughout the life of your jobs.

Note: For the best view of the webinar, select “Full screen” mode (the “X” in the player bar). You can also click the gear icon to change the playback speed…

Podcast Interview Summary (or Read the Entire Transcript here)

The Three-legged Stool of Business

Every business has three essential tasks: 1. You’ve got to sell the work, 2. You’ve got to do the work, 3. You’ve got to keep score to see how well your work is doing.

The Importance of Accurate Accounting

You can’t wait until the end of the year to find out from your accountant if you made any money. You need to be doing your accounting regularly because if you aren’t pricing your work correctly or don’t understand your numbers, you could be losing money.

The Gross Profit Rollercoaster

Because of the way cash flow works, you can make all kinds of money one month (which can cause you to go out and spend that money), only to have things correct themselves the next month, and then you can end up in the hole.

Cash Basis vs. Accrual Basis Accounting

There is a big difference between Cash Basis and Accrual Basis accounting. Cash Basis recognizes income when cash is received and costs when money is paid, leading to significant swings in Gross Profit.

Challenges with Accrual Basis Accounting

Accrual Basis accounting recognizes income when invoiced and costs when expenses are incurred, which is more accurate than Cash Basis but still has challenges. For example, discrepancies can arise when you invoice ahead of incurring costs or vice versa.

Matching Concept

The Matching Concept is essential for understanding a business’s true financial picture. It involves aligning income and expenses properly so you know the real profit or loss at any given time.

Issues with Accrual Accounting

Even in Accrual accounting, mismatches occur due to factors like customer deposits, material deliveries, and differences in when you invoice and incur costs. These discrepancies can lead to irregular Gross Profit patterns.

Timely Reporting

It’s crucial for contractors to have accurate and timely financial reporting. Waiting until the end of the year for your CPA to assess your financial situation is not effective for managing and growing your business.


To address the Gross Profit Rollercoaster, adjustments need to be made to align income and costs accurately. These adjustments account for situations where invoices, bills, or payments are out of sync with job progress.

Relationships and Trends

Accounting is not just about numbers; it’s about understanding the relationships and trends within your financial data. Consistent, accurate reporting helps contractors make informed decisions.

The discussion underscores the importance of setting up the Chart of Accounts correctly, understanding the nuances of accounting methods, and actively managing financials to avoid rollercoaster-like swings in Gross Profit. Contractors are encouraged to focus on accurate accounting practices to gain better control over their businesses.

How to Overcome the Gross Profit Rollercoaster

Start with an Estimate

To overcome the Gross Profit Rollercoaster, we recommend starting a project with a detailed estimate of anticipated income and costs. This estimate serves as a baseline for tracking financial performance.

Adjusting Income and Costs

The next step is to adjust income and costs throughout a project’s duration to align with the estimated figures. This adjustment helps maintain a consistent Gross Profit percentage.

Overbilling and Underbilling

When you Invoice a customer before you’ve earned the income, it’s called “overbilling,” and the adjustment to income goes to an account called “Overbillings.” In other cases, you have not yet Invoiced the Customer for as much as you’ve earned (referred to as “underbilling”), and those adjustments to income go into an account called “Underbillings.”

Regular Monitoring

The article emphasizes the need for continuous monitoring of income and costs. It suggests revising estimates as needed and keeping them in sync with actual project progress.

Work in Progress (WIP) Adjustment

“Work in Progress Adjustment” is important – the process of modifying the estimate to maintain proportional income and costs.

Handling Changes in Costs

We advise adapting estimates in response to changes in costs, which may fluctuate due to factors like material price increases or decreases.

Monthly Adjustments

Regular Percentage of Completion adjustments are recommended as part of the monthly financial review process.

Monthly Financial Review

Monthly financial reviews are essential to identify any deviations from the estimated Gross Profit percentage and take corrective action.

Job Management

Effective job management involves constant monitoring and collaboration among team members to ensure that projects stay on track financially.

Investing in Training and Education

We recommend investing in training and education, both for yourself and team members, to ensure a better understanding of financial concepts and reports.

Software and Tools

Various tools and resources are offered through the Construction Accounting and Management Program (CAMP) to assist contractors in managing their finances effectively.

Importance of Financial Reporting

Consistent and accurate financial reporting, especially in construction accounting, is critical to making informed decisions and ensuring the business’s financial health.


This interview concludes by reinforcing the idea that understanding and effectively managing construction project finances is essential for long-term business success.

Overall, this interview provides valuable insights into managing construction project finances, specifically focusing on Gross Profit and the importance of maintaining a consistent Gross Profit percentage throughout the project’s life. It highlights the need for regular monitoring, adjustments, and education in financial management for contractors.


  • Click the following link to learn more about Dave Sullivan and The Roofer Show podcast. It’s the podcast that helps roofing contractors grow their businesses, make more money, and have more free time!
  • Discover the Info Plus tool that helps you see more about your month-to-month profitability! 
    The Percentage of Completion Analyzer helps you easily create Percentage of Completion calculations and adjustments.
    Click the link above for more info – or for further assistance,
    contact us at 734-544-7620 (9-5 Eastern, M-F).

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