Cost-plus is the fairest contract in construction and the easiest one to lose money on. The client pays what the job really costs, plus a fee, and in exchange sees every receipt. That's fair. It's also a promise: every dollar you bill has a piece of paper behind it, and every dollar without one is a dollar the client can decline. Contractors who run cost-plus with a shoebox end up doing fixed-price work for a fee that was never meant to carry the risk.
The fee has to clear overhead first
The fee is not the margin. A 15% fee on cost sounds like 15% profit until overhead is paid. Cost-plus jobs tend to be the longest, most administrative jobs a small contractor runs, so the overhead they carry is above average, not below.
Work it from your overhead rate. At a 20% overhead rate on revenue and an 8% net target, the gross margin needed is 28% of price, which is a 39% markup on cost. A fee of 15% on cost is a 13% margin on price; after 20% overhead, the job nets minus 7%. Either the fee is higher than folklore suggests, or the "cost" side includes things a fixed-price job would bury in markup: supervision, project management time, the truck, general conditions. Most well-run cost-plus contracts do both: a defined list of reimbursable costs that includes supervision at a stated hourly rate, and a fee of 18% to 25% on top. The overhead guide finds your rate; the markup to margin calculator converts the fee.
Define what's reimbursable before the first receipt
The contract should list, plainly, what the client is paying at cost:
- Materials delivered to the job, with receipts.
- Subcontractors, at their invoiced amount.
- Crew labor at a stated burdened hourly rate per role, with timesheets.
- Supervision and project management at a stated rate, with hours.
- Permits, inspections, dumpsters, rentals, deliveries.
- A stated contingency or none.
And what it isn't: tools you keep, your office, your insurance, your vehicle beyond a stated mileage or daily rate. Every argument about a cost-plus invoice is an argument about a line that wasn't on this list.
The monthly statement
Bill on a fixed day each month, or at agreed milestones, and give the client the same document every time:
- Summary. Costs this period by cost code, the fee on those costs, the total due, and the running total against the estimate.
- Detail. Every cost line: date, vendor, description, cost code, amount, and a reference to its receipt or invoice.
- Labor. Hours per person per day at the contract rate, totalled.
- Change log. Any scope changes approved this period, even on a cost-plus job; they change the estimate the client is measuring the running total against.
- Attachments. The receipts, in the same order as the detail. A statement without the receipts attached is a request for a meeting.
A worked month: materials $14,200, subs $9,600, crew labor 212 hours at $48 is $10,176, supervision 24 hours at $85 is $2,040; reimbursable costs $36,016. Fee at 20%: $7,203. Total due $43,219. If $1,900 of the crew's receipts never reached the file, the invoice is $2,280 lighter (the cost plus its fee), and no one will ever ask for it.
The file is the product
On a fixed-price job, a lost receipt costs you the deduction. On a cost-plus job it costs you the receipt, the fee on it, and the client's confidence if a line shows up without one. So the capture loop is the work. The receipt tracking guide is the five-second habit at the counter; what matters for cost-plus is that the habit runs through the crew, not just the owner, and that every receipt lands on the job with a cost code the same day.
Obra is built around that: receipts arrive by WhatsApp, email or photo, are read into a draft, and are confirmed to the project and category with the image attached. At month end the statement's detail section is an export of the period's costs, receipts included. Labor entries and supervision hours are recorded the same way. The client's audit becomes a scroll, not a search.
The mistakes that turn cost-plus into a discount
- Billing quarterly. Clients pay monthly statements they can remember; they argue about quarterly ones they can't.
- Rounding hours. A crew's hours reconstructed on Friday are always fewer than the hours worked. Record them daily.
- Absorbing small purchases. The $38 of fasteners and the $60 of blades, thirty times a job, is $3,000 of cost and $600 of fee.
- Treating the estimate as the price. Cost-plus has an estimate, not a price. Say so in the contract and on every statement, and flag the running total against it before it passes.
- Forgetting the fee applies to change orders too. A scope change on a cost-plus job is new cost; it carries the fee like any other.
Questions people ask
What percentage fee is normal for cost-plus? Published ranges run from 10% to 25% of cost; the right number depends on what the reimbursable list already covers. A fee that has to carry supervision and overhead needs to be at the top of the range or above it.
Do I have to show the client every receipt? Under most cost-plus contracts, yes, on request at minimum. Attaching them to every statement is easier than answering requests, and it's what makes the invoice pay in days instead of weeks.
Can I mark up subcontractor invoices? Only if the contract says so. Most cost-plus contracts pass subs through at invoice and apply the fee to the total; some allow a handling percentage on top. Whatever it is, it's in writing or it isn't billable.
Get the template
The free job costing spreadsheet below keeps every cost with its date, vendor and category on one sheet per job, which is the detail section of a cost-plus statement on paper. Enter your email and the download starts right away.