Construction finance glossary

• Allowance — An allowance is a placeholder dollar amount in an estimate for a selection the client hasn't finalized — like tile, fixtures, or appliances.
• Change order — A change order is a written modification to the original contract scope or price — added work, a selection upgrade, or a condition discovered on site.
• Committed cost — A committed cost is money you're obligated to spend but haven't been billed for yet — typically an open purchase order or signed subcontract.
• Contingency — Contingency is a buffer amount (a percentage of cost) added to an estimate to cover the unknowns that show up on almost every job.
• Cost codes — Cost codes are standardized buckets (e.g. materials, labor, subs, equipment — often by phase) used to categorize every job cost so you can compare actuals to the estimate.
• Cost-plus contract — A cost-plus contract bills the client for actual job costs plus an agreed fee or percentage, rather than a fixed price.
• Draw schedule — A draw schedule sets the milestones at which a contractor can bill for (draw) payment on a job — e.g. at rough-in, drywall, and completion.
• Estimate vs. actual — Estimate vs. actual compares what you bid for each part of a job to what it actually cost, revealing where your estimating was off.
• Fixed-price (lump-sum) contract — A fixed-price contract sets one total price for the defined scope; the contractor keeps the upside if costs come in low and eats overruns if they don't.
• Gross profit — Gross profit is revenue minus the direct cost of the work (materials, labor, subs) — before overhead and other business expenses.
• Job costing — Job costing is tracking the actual costs of a specific job — materials, labor, subs, and other expenses — against what you estimated, so you know the real profit on that job.
• Labor burden — Labor burden is everything you pay on top of a worker's wage — payroll taxes, workers' comp, benefits, and overhead — so the true cost of an hour is usually 25–40% above the wage.
• Margin (gross margin) — Margin is profit measured against your price — the percentage of the sell price that's profit after costs.
• Markup — Markup is profit measured against your cost — the percentage you add on top of cost to get your price.
• Net profit — Net profit is what's left after all costs — direct job costs plus overhead and operating expenses — i.e., the actual bottom line.
• Overbilling / underbilling — Overbilling is billing more than the work completed to date; underbilling is billing less. Both distort how profitable a job looks until it's reconciled.
• Overhead — Overhead is the cost of running your business that isn't tied to one job — truck, tools, office, insurance, admin — recovered by adding it to every bid.
• Profit fade — Profit fade is when a job's expected profit shrinks as it progresses — usually from cost overruns, unbilled changes, or optimistic estimates.
• Progress billing — Progress billing is invoicing for a job in installments as work is completed, rather than one lump sum at the end.
• Purchase order (PO) — A purchase order is a document committing to buy materials or subcontracted work at agreed quantities and prices, tied to a job.
• Retainage — Retainage is a percentage (often 5–10%) a customer withholds from each progress payment until the job is finished, to ensure completion.
• Schedule of values (SOV) — A schedule of values breaks the contract price into line items so progress billing can be tied to the portion of each item that's complete.
• Time and materials (T&M) — A time-and-materials contract bills for actual labor hours at set rates plus materials, often with a markup, rather than a fixed price.
• Work in progress (WIP) — A WIP report shows, across all open jobs, how much has been earned vs. billed — surfacing overbilling and underbilling and your real position.

Put these to work: the free job profit, labor burden, and retainage calculators, or start free.