Use fixed price when you can see the whole scope and have built it before. Use cost-plus when the walls are still closed or the homeowner has not picked finishes. The money is in knowing which is which. Remodeling consultant Bryan Kaplan targets 30-33% gross margin on fixed-price work and 22-26% on cost-plus. On a $60,000 kitchen, that gap is roughly $4,200. NAHB puts the average remodeler's net at 6.3%, which is $3,780 on the same job. So fixed price pays you more than your entire average profit for carrying the risk, and one missed line the size of that profit wipes it out. Take fixed price where your number holds. Charge cost-plus where it cannot.
What is the difference between cost-plus and fixed price?
It comes down to who pays when the job costs more than the estimate said. On fixed price, you do. On cost-plus, the homeowner does.
A fixed-price contract says: for the scope written here, the price is $X. Whatever it actually costs you, the number does not move unless the scope does, through a change order.
A cost-plus contract says: you pay what the work actually costs, plus my fee. The fee is a percentage of cost or a flat amount. Every receipt, every sub invoice and every crew hour becomes the homeowner's business, because they are paying it line for line.
| Fixed price | Cost-plus | |
|---|---|---|
| Who eats an overrun | You | The homeowner |
| Who keeps an underrun | You | The homeowner |
| Gross margin target (Kaplan) | 30-33% | 22-26% |
| What the homeowner sees | One number | Every receipt |
| When the homeowner upgrades | You write a change order | Your fee goes up with the cost |
| Paperwork | Estimate and change orders | Receipts, timesheets, invoices, reconciliation |
| Works best on | Scope you can see | Scope you will find |
Search interest in "cost plus contract" runs highest from November through March on Google Trends. That is when homeowners are planning spring projects and asking contractors why the two bids in front of them look nothing alike.
When should a remodeler use fixed price?
When you have built this exact thing enough times that your estimate is a record, not a guess. That is where the extra margin is honest money.
Fixed price fits:
- A hall bath in a 1990s house, where you have pulled the same tile off the same backer board forty times.
- A deck on a flat yard with no old footings to pull.
- A kitchen where the layout stays and the cabinets swap in place.
- Any job the homeowner has fully picked: tile, fixtures, counters, the lot.
The arithmetic cuts both ways. If your estimate comes in 5% heavy, you keep it. If it comes in 7% light on a $60,000 job, that is $4,200 gone, and at NAHB's 6.3% average net you have done the kitchen for nothing. Fixed price rewards the contractor whose estimates are accurate and punishes the one who is fast and hopeful.
The other thing fixed price does, which contractors do not say out loud: it hides your line items. Kaplan quotes a remodeler who preferred fixed price because his estimates were "either way under or way over" and on cost-plus the homeowner would see it. That is a real reason. It is also a warning, because it means the fixed price was absorbing the misses rather than earning the margin.
When should a remodeler use cost-plus?
When you cannot know the cost until you open something up, or the homeowner cannot tell you what they want yet. Pricing those jobs fixed is not confidence. It is betting.
Cost-plus fits:
- A 1950s bath where the toilet has been rocking for years. You will not know how far the rot runs in the subfloor until the tile is up.
- A second-story addition, where the existing framing and footings decide half the scope.
- A whole-house gut on a house with plaster walls and unknown wiring.
- A homeowner who wants to "decide on finishes as we go". Every one of those decisions is a change order on fixed price, and every change order is a conversation.
On these jobs the lower margin is the price of not carrying the risk. A 24% gross that you actually collect beats a 32% gross that turns into 18% the day the floor comes up.
What fee should you charge on cost-plus?
The sources disagree, and the gap matters. Projul lists 20-35% for remodelers. Kaplan says few homeowners will accept paying more than 20% on top of each dollar spent. In residential, the lower number is closer to what signs.
Watch how the fee is quoted. A 20% fee on cost is not 20% of the price:
| Cost of the work | Fee at 20% of cost | Price | Fee as % of price |
|---|---|---|---|
| $50,000 | $10,000 | $60,000 | 16.7% |
That 16.7% has to cover your office, your trucks, your own time selling the job and whatever profit you want to keep. NAHB's average remodeler runs 29.9% gross. A cost-plus remodeler reaching Kaplan's 22-26% is usually making the difference on his own crew, by billing their hours at a set rate rather than at what he pays them. If you bill your crew at cost, the fee alone will not get you there. Markup and margin are not the same number, and this is the contract where confusing them hurts most.
What counts as "cost" on a cost-plus job?
Write it down before you start, because this is where cost-plus arguments come from. The homeowner assumes cost means materials and subs. You assume it also means your lead carpenter's time, the dumpster, the permit, your truck and the Home Depot run.
AIA's residential agreement, A110-2021, handles this with a separate exhibit, "Determination of the Cost of the Work". The name alone tells you how much gets argued about. Whether you use AIA or your own paper, settle these in writing:
- Your own crew's labor, and the hourly rate you bill it at.
- Supervision. Is your time on site a cost, or does it come out of the fee?
- Equipment you own, like the trailer and the saws. Billed by the day, or included?
- Small consumables. Nobody wants to explain a $14 box of screws on an invoice.
- Rework. Who pays when your crew fixes its own mistake?
- Receipts. How often the homeowner sees them, and in what form.
Skip item 5 and it gets decided for you, at the kitchen table, after the mistake.
Is a guaranteed maximum price a good middle ground?
For a small remodeler, usually not. A GMP is cost-plus with a ceiling. The homeowner pays actual cost plus your fee up to the maximum, and above it, you pay. You take cost-plus margins and fixed-price risk at the same time.
Projul's example builds a GMP from $300,000 of estimated cost, a 20% fee and an 8% contingency, for $384,000. That works on a large job where the contingency is real money. On a $60,000 bathroom-and-kitchen job, the contingency is thin and the ceiling bites on the first surprise.
The middle ground that actually works for most remodelers is fixed price with honest allowances and written exclusions. The scope you can see gets a firm number. The finishes the homeowner has not picked get an allowance with a credit-or-overage clause. The things behind the wall get a stated contingency or a line saying they are not included. Then whatever you find goes through a change order, not a debate.
What this misses
The margin targets are one consultant's, not a survey. Kaplan works with remodelers who chose him, so treat 30-33% and 22-26% as a sensible benchmark rather than what the average shop earns.
State law matters and this piece does not cover it. Several states have home-improvement contract rules on what a written price must state, and a cost-plus contract has to meet them the same as a fixed one. Check yours before you switch.
None of this matters if your fixed-price estimates are not accurate. The whole case for fixed price is that your number holds, and it only holds if the walkthrough caught everything. BidWalk turns the walkthrough itself into the estimate, so the scope you priced is the scope you saw.
