Every remodel contract has a few numbers in it that aren't prices. "Tile allowance $2,400." "Fixture allowance $3,400." "Vanity and top $3,800." They let the contract be signed before the client has been to the showroom. They're also where kitchen and bath remodelers lose more margin than anywhere else, because the showroom always wins and the paperwork usually loses.
What an allowance is, and what it isn't
An allowance is a placeholder in the contract for an item the client hasn't chosen. The contract says: this much is included; if the selection costs more, the client pays the difference; if it costs less, the client gets a credit. Simple, until three questions go unanswered:
- Does the allowance include markup, delivery and installation? If the contract doesn't say, the client assumes the number is what the store charges and installation is free.
- How is the overage priced? At cost, or with the job's markup? A $2,300 overage passed through at cost costs you the markup on $2,300 and the extra hours the fancier item takes.
- When is it billed? On approval, at the next draw, or at the end, when the client has forgotten choosing it.
The contract language that answers all three is short: "Allowances are for the material as delivered, exclusive of installation. Amounts above an allowance are billed as a change order at cost plus the contract markup of X%, due on approval. Amounts below are credited at cost."
The overage has to carry markup
An allowance overage isn't a favor you pass through. The more expensive tile takes the same setter longer; the freestanding tub needs a different rough-in; the custom vanity ships in six weeks instead of two and needs a deposit. The overage is new scope and it carries the risk and overhead of any scope. The markup vs. margin guide explains why passing it through at cost is a discount you didn't mean to give, and the change order pricing calculator prices it.
Worked through: vanity allowance $3,800, selected vanity $6,100 delivered, overage $2,300. At the job's 25% markup, the change order is $2,875. Passed through at cost, you've given away $575 and the two extra hours of plumbing the wall-mount faucet needs.
The four-step sequence
- Budget the allowance as its own line in the job's budget, at the contract figure.
- Log the selection against that line the day it's ordered: actual cost, receipt attached.
- Write the change order for the overage, with markup, the same day, and get it signed.
- Order only after step 3.
Reverse steps 3 and 4 and the overage becomes a conversation in month four, and you lose it. The change order guide is the five-minute version you can send from the showroom parking lot.
The credit side
When the client picks under the allowance, credit the difference at cost, on the next draw or the final invoice, and say so on the invoice. Contractors who credit promptly get to bill overages promptly; the fairness is what makes the paperwork tolerable to the client.
Allowances as a budget line
Treat each allowance as a cost code or a budget line on the job, so the budget vs. actual view shows the allowance, the actual selection, and the gap per item. On a kitchen with six allowances, that view is where the margin lives: three over, two under, one unresolved, and a change order log that matches it line for line. Obra keeps that view on each project, with the change orders on the contract side and the selection receipts on the cost side, so the adjusted contract value moves with every signed overage.
Questions people ask
Should the allowance include installation? Usually not; installation varies with the item. Say so in the contract, and price the installation change when the selection changes the labor.
What if the client says the allowance was too low? It may have been. Allowances set to win the bid, not to reflect what the client will choose, produce overages on every item and a client who feels tricked. Set allowances from real showroom prices for the client's stated taste, and show them the range when the contract is signed.
Can I refuse a selection? You can decline to install a product you can't warrant, and the contract should say so. What you can't do is install it and then argue about the cost.
Get the template
The free job costing spreadsheet below has a category column ready for allowance lines, so the selected-versus-allowed gap is visible per item on paper. Enter your email and the download starts right away.