Fixed-Cost VS Cost-Plus Pricing

 

Considering a remodel or new build in Upstate SC?

A common initial concern is, "How Much Will it Cost?" The answer to this question depends on the project, of course, but also on your contractor’s pricing model. You will come across two primary pricing methods in the world of builders and remodelers: Fixed-Cost and Cost-Plus. In this discussion, we will unravel both pricing models, allowing you to make an informed choice between them.  

 

Cost-Plus

Definition: Cost-plus pricing includes the cost of the materials, labor, management, and associated costs, plus the builder’s overhead/profit fee, which is either fixed or a percentage often around 20-30%. 

Variations of Cost-Plus

 

Cost-Plus Time & Materials 

Example: “I charge $75/hr to do a bathroom remodel, plus materials.”

This is often the pricing model of smaller handyman services. There is no incentive to complete the project in a reasonable timeframe since adding labor time will directly profit the handyman. 

 

Cost-Plus Fee 

Example: “We estimate this home addition at 500K, including our fixed overhead fee.”

In the example above, the builder has included their 50K overhead fee leaving 450K for materials & labor. This is not an issue on its own, but if the cost of materials and labor exceeds that amount by 100K, the client is responsible for the additional cost. Consequently, the builder has no incentive to complete the project on or under budget.

 

Cost-Plus Percentage

Example: “We estimate 100K for this kitchen remodel, including our percentage overhead and added profit fee.” 

Many Cost-Plus Percentage Builders charge 20%–30% for overhead costs. In the example above, if the cabinets come in 5K over budget and the plumbers come in 5K over budget, the client ends up spending an additional 12K – the extra 2K being the builder’s fee. This is the riskiest model for a client as the builder has an actual financial incentive to increase costs and go over budget. 

Perceived Pros

All three variations of the Cost-Plus model are appealing because they often offer quicker starts and present a lower estimate upfront.  

Cons

With a Cost-Plus contract, the client is responsible for paying for any additional costs. If costs escalate, the client pays. If the project is delayed, the client pays. If the builder does not meet expectations, the client pays. It's important to note that the builder is not affected by cost increases, and in some cases, may even make an additional profit from them.

The Fixed-Cost Advantage

Definition: This pricing model includes the precise cost of materials, labor, management, associated costs, and the builder's overhead/profit. Details on the project scope are planned and agreed upon before the contract is signed. 

As a fixed-cost builder in Greenville SC, transparency is at the core of Our Process. Our fixed-cost pricing model offers distinct advantages over the Cost-Plus approach. 

Our Fixed-Cost Process

 

Professional Services Agreement

Instead of giving our clients an estimate (or, more accurately, a “guessetimate”), we charge an initial fee with our Professional Services Agreement which will provide the details we need to present an accurate number. This includes a site analysis, documentation of the existing space, floor plans, detailed renderings, and a comprehensive “fixed cost” quote. Our process allows for revisions to ensure that you are comfortable with the bottom line before you sign the Construction Agreement. Your initial investment in the Professional Services Agreement is credited to your overall construction budget. 

 

Construction

Once the Construction Agreement is signed, we get to work. Your cost remains fixed unless you choose to add something or hidden damage is uncovered. In such cases, a Change Order (CO) is initiated, but you have complete control over approving or declining these changes before additional costs are incurred. Our goal is always to minimize these changes through thorough planning. 

Conclusion

Though there are pros and cons to both pricing models, a fixed-cost contract is the safer option for a client wanting to maintain control over their budget. Regardless of their pricing, it's important to choose a builder you can trust with your home and wallet.

Choosing a fixed-cost builder gives you peace of mind and transparency throughout the construction process. If you are looking for a builder with a commitment to upfront budgets, detailed approvals, and control of your project’s finances, choose Ferguson Builders for your next remodel in Greenville, SC.