# Profitability Protection Features

Tillage includes unique profitability tools that help you price projects accurately and protect against scope creep. These features ensure you never undercharge for your work.

## Variance Buffers

Variance buffers are Tillage's signature feature for protecting against project risk.

### What Are Variance Buffers?

A variance buffer is a risk percentage added to each line item in your quote. It accounts for:

- Scope creep and change requests
- Unexpected complications
- Client revision rounds
- Estimation uncertainty
- External dependencies

### How Variance Works

When you set a variance buffer, it increases the line item total:

**Example:**
- Base cost: 10 hours × $150/hour = $1,500
- Variance buffer: 20%
- Line total: $1,500 × 1.20 = $1,800

The extra $300 protects you if the work takes longer than estimated.

### Variance Display Options

You control how variance appears to clients:

- **Hidden** - Client sees only the final price
- **Blended** - Variance is factored into the unit price
- **Visible** - Client sees the breakdown (rare, for transparency)

Most agencies hide or blend variance to present clean pricing.

### Recommended Variance Levels

| Scenario | Suggested Variance |
|----------|-------------------|
| Repeat projects with clear scope | 5-10% |
| Well-defined projects, familiar clients | 10-15% |
| Standard projects, new clients | 15-20% |
| Complex projects, unclear requirements | 20-30% |
| High-risk or experimental work | 30-50% |
| Projects with external dependencies | 25-35% |

### AI-Suggested Variance

When using AI quote generation, Tillage suggests appropriate variance based on:

- Line item complexity
- Project type and industry
- Keywords indicating risk (e.g., "integration," "custom," "migration")

## Global Profit Margin

The global profit margin ensures a minimum profitability across your entire quote.

### How It Works

After variance is applied to each line item, the global profit margin adds an additional percentage to the total:

**Example:**
- Line item with variance: $1,800
- Global profit margin: 15%
- Final line total: $1,800 × 1.15 = $2,070

### When to Use Profit Margin

- **Agency markup** - Add your agency's standard margin on top of costs
- **Team profit sharing** - Build in profit for bonuses or reinvestment
- **Rate standardization** - Apply consistent margins across all projects
- **Subcontractor markup** - When reselling subcontractor work

### Typical Profit Margins

- **Freelancers:** 10-15% (simpler cost structure)
- **Small agencies:** 15-25%
- **Mid-size agencies:** 20-35%
- **Large agencies:** 25-40%

## Complete Pricing Formula

For each line item in Tillage:

```
Base Cost = Quantity × Unit Price
With Variance = Base Cost × (1 + Variance%)
Final Total = With Variance × (1 + Profit Margin%)
```

**Full Example:**
- Quantity: 20 hours
- Unit Price: $125/hour
- Variance: 20%
- Profit Margin: 15%

```
Base Cost = 20 × $125 = $2,500
With Variance = $2,500 × 1.20 = $3,000
Final Total = $3,000 × 1.15 = $3,450
```

Your client sees $3,450. You're protected against risk and guaranteed profit.

## Discount Management

Apply discounts after variance and profit are calculated:

### Discount Types

- **Percentage discount** - Take a percentage off the total (e.g., 10% off)
- **Fixed discount** - Subtract a specific amount (e.g., $500 off)

### Discount Strategy

Since discounts apply after profitability calculations, you can offer discounts while maintaining your margins:

- Build in your standard variance and margin
- Offer a "discount" that brings the price to your target
- Client feels they're getting a deal
- You maintain profitability

## Locked Pricing

Once a quote is approved, prices are locked:

- Invoice prices match the approved quote exactly
- No recalculation when creating invoices
- Protects both you and your client
- Ensures quote accuracy and trust

## Real-Time Calculations

As you build your quote, Tillage shows:

- **Base subtotal** - Raw cost before adjustments
- **With variance** - Cost including risk buffer
- **With margin** - Full price including profit
- **Discount** - Any reductions applied
- **Final total** - What the client pays

This transparency helps you understand your profitability at a glance.

## Settings Defaults

Configure your defaults in Settings:

- **Default variance** - Applied to new line items (e.g., 15%)
- **Default profit margin** - Starting margin for new quotes (e.g., 20%)
- **Default unit price** - Your standard hourly rate

These defaults speed up quote creation while maintaining consistency.

## Profitability Reports

Premium users can track profitability across:

- Individual quotes and projects
- Clients over time
- Service categories
- Team members

This data helps you refine your pricing strategy.

## Best Practices

1. **Always include variance** - Even well-scoped projects have unknowns
2. **Adjust per line item** - High-risk items get higher variance
3. **Review before sending** - Check that margins meet your minimums
4. **Track actuals** - Compare estimated vs actual hours to refine future quotes
5. **Be consistent** - Use similar variance for similar project types

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*Related: [AI Quoting](/llms/features/ai-quoting.txt) | [Variance Buffers Guide](/llms/guides/variance-buffers.txt) | [Formulas Reference](/llms/reference/formulas.txt)*