Should I Charge Cost-Plus Or Fixed-Cost?

It's a great question and one that many remodelers and custom home builders have to consider. You can generally boil down all pricing structures into one of these two methods: Fixed-Cost or Cost-Plus.

Meaning, you either get paid a fixed fee for your work or are charging costs - plus a fee - based on actual expenditures. Neither of these methods is perfect in protecting the remodeler from being profitable or the homeowner when managing the final cost of their remodeling project. 

What is important is that you consider the pros and cons of these two pricing structures and then decide which type of contract you'll use in your remodeling or construction business.

Start-ups Should Use Fixed Cost

At the beginning of your remodeling or custom home building journey, you are managing many things. And likely, you're doing this alone or with a partner. Fixed cost contracts can be more forgiving when it comes to the estimating side of things as you will learn how to sell your value better than if you're selling cost-plus contracts.

As we discussed, you'll be over on some and under on other cost lines. But overall, you can bake in padding and a higher margin into the contract, so it's typically a safer method to operate while you collect data, develop your knowledge of costs, etc.

Ask Who Not How

There's a great book called "Who Not How." The basic premise is that sometimes it's beneficial to get much larger results by asking others for assistance. In the realm of estimating and profit for remodelers and custom home builders, this means leveraging our trade partners to get their input on their specialty.

So whichever method you decide to use (or change from one to another), make sure that you have a PAID estimating process that helps you benefit from other people's experience and opinions on cost. This is what it means to give "time and space" for the estimating process.

For more about getting started with a paid estimating process, check out this free training here.

Avoid Doing Both

It's not to say that you can't operate in both a fixed-cost and cost-plus manner. But it becomes difficult to adjust your sales language and on-going communications with each different client. 

It also becomes hard to optimize your brand for profit when you're mixing these two pricing models. Pick one method and stick with it for a while because you can be very profitable with either of these. The grass is the same colour as green on the other side of the fence.

Learn How To Sell Your Value Drivers

Your success depends on your ability to sell the value drivers of your brand to your prospective clients. This means that regardless of the method of billing you choose to use, you have to help a client understand WHY they should work with you instead of someone else.

You are a client's guide through a messy process, one they don't know a lot about. Being able to sell your value is the key to being profitable in the construction industry. So whichever model you choose, remember that it's more important to be able to sell.

If you want to learn more about integrating a proven sales process for either pricing model, then book a strategy session here.