Why Remodelers, Custom Builders, and General Contractors are Switching to a Cost Plus Approach

For years, most general contractors and remodelers used fixed-price contracts, where they billed clients one lump sum for their entire renovation or custom home build. On the surface, it seems like a simple process: one number, one deal. But behind that number is a lot of guesswork, risk, and hidden markups. That's why many experienced remodelers, builders, and general contractors are making the switch to a different approach: the cost-plus contract.

Cost-plus contracts are gaining popularity because they offer what remodelers need more than ever—flexibility, transparency, and protection from unpredictable costs. Instead of locking into a single price upfront, cost-plus contracts bill clients based on actual labor spent, receipts for materials and trade costs, plus a clear percentage for overhead and profit.

While cost-plus contracts are gaining popularity in the residential construction industry, there is still some stigma about this type of construction contract being a lazy way of pricing work, only used by contractors who don't want to spend time estimating and sticking to timelines and budgets. However, this couldn't be further from the truth. They require diligence and detail to execute them correctly. That means implementing solid systems and processes, transparent communication practices, and disciplined financial management. 

The best way to learn how to implement those systems is from someone who's done it themselves - like me. I'm Bryan Kaplan, and I spent over 21 years in residential construction and the past six and a half years coaching other remodelers and custom builders on how to master cost-plus systems to build profitable, well-organized businesses. In this post, we'll examine why more custom building and remodeling companies are choosing cost-plus contracts and how this model benefits both them and their clients.

What Is the Cost Plus Approach in Construction? 

When it comes to residential construction, the type of contract you choose can have a big impact on the project's outcome. For most builders and remodelers, the two most common contract formats are fixed price or cost plus.

Let's quickly break down the differences between the two:

Fixed Cost Contracts: Familiar, But Not Always Flexible

Fixed-cost or fixed price contracts have been the industry standard for years. They offer clients a single, all-in total cost for the entire project. On the surface, this seems simple and appealing—clients know exactly what they're going to pay, and you, as the builder, have the potential to protect your margins if the job goes smoothly.

"For all of the scope listed in this contract, you charge the client a set total project cost of X dollars."

But as every experienced contractor knows, there's often more going on beneath that lump sum. The lack of transparency into what each component of their project costs can often create tension between remodelers and homeowners. This can lead homeowners to feel like they aren't getting the full picture and cause contractors or builders to feel like they're getting squeezed. 

This model also puts more pressure on you to price out every detail in advance, which can delay a construction project's start. It also doesn't allow for the flexibility to protect your profit margin if costs go up mid-project.

Cost Plus Contracts: Transparent and Adaptable

Cost-plus contracts work differently, and for many builders, they're becoming the preferred way to work. With a cost-plus model, clients pay for the actual costs of the project as they happen—things like labor, materials, and trades—based on real receipts and documentation. On top of that, you charge a set contractor fee or a percentage to cover your overhead and net profit contributions.

In other words: 

"For every dollar you spend on a client's behalf, you charge them $1.XX". (XX being the markup you charge). 

The big advantage of a cost-plus approach is transparency. Clients can see exactly where their money is going without having to reverse-engineer a quote. This builds trust and makes conversations about budget much easier, as there are fewer assumptions and less guesswork on both sides.

Cost-plus agreements are also more flexible than their fixed fee counterparts because they allow you to move forward on a project even when some details are still being finalized. That's especially helpful on custom homes or major remodels where plans evolve as the work progresses. You're not locked into a number that might become outdated the moment something changes.

Four Reasons Why Renovation Companies and Home Builders Are Switching to a Cost-Plus Approach

More builders and remodelers are shifting to a cost-plus approach because it reduces risk for both themselves and their clients and creates a more collaborative relationship. Instead of drawing a hard line between "builder" and "client," cost-plus contracts encourage both sides to work together toward the same goal: a successful, high-quality build with no hidden surprises.

Here are four reasons why builders and remodelers are choosing a cost-plus approach for their residential construction businesses:

1. Cost Transparency Builds Trust with Clients

Unlike fixed-cost contracts, where the client can't see what items cost or how much of a markup their contractor is taking, the cost-plus approach gives homeowners more transparency into how their money is being spent. This means they don't have to spend time "reverse engineering" estimates to see where their money is going or worry about being taken advantage of.

 2. Flexibility for Changes & Upgrades

Remodels and custom-built homes almost always come with surprises—whether it's hidden site conditions discovered during demolition or design choices that are still in flux. Fixed-price contracts can make these changes harder to manage, often leading to uncomfortable conversations about additional fees. Cost-plus contracts give you the flexibility to adjust pricing as the project evolves without burying costs or cutting into your margins. When something unexpected comes up, you can have an open conversation with your client, which helps maintain trust. 

The same goes for allowances. Clients are making long-term decisions about finishes they'll live with for years, so it's understandable that some selections will take time, especially when they're working with architects and designers to bring their vision to life. With a cost-plus approach, you bill the actual cost plus markup when those choices are made, instead of guessing upfront or sacrificing margin. Just make sure you have a solid change order process in place—cost-plus isn't a blank check, but it does make adapting to real-world changes much smoother. Learn more about change orders here.

3. Fair Profitability for Builders and Remodelers

Cost-plus contracts take a lot of pressure off the estimating process. With fixed-cost jobs, an estimate is created before all the project details are finalized, which means there's a lot of "guessing" at final costs. To protect themselves, builders often build in extra room for potential surprises. But even the most experienced builders can miss things, and when they do, they often feel that they can't go back to the client for more money, even if it's justified. That can put profitability at risk, especially if the oversight is a big one. Cost-plus changes the equation. You get paid for the actual work performed, with full visibility into project costs, so you're not left covering expenses that weren't accounted for upfront. It's a more straightforward, fair way to get paid for what the job truly takes.

4. Reduces Cost Disputes & Scope Creep

With cost-plus contracts, clients see the exact costs for their remodeling or custom building project as they happen. That kind of transparency helps minimize cost disputes, since nothing comes as a surprise. When contract terms are clear, and spending is documented along the way, it's easier to keep the project moving forward without tension.

As for scope creep, it often starts well before the job begins. During estimating, clients may start removing items to match a number they have in mind, even if that number doesn't align with what it actually takes to get the desired results. Then, once the project kicks off, those same items slowly start making their way back in. To properly head off scope creep, you need a strong pre-construction process where you can walk clients through the full scope required to meet their goals. That, combined with a cost-plus approach, ensures that everyone is on the same page about budget and scope of work.

Why You Should Work With a Construction Coach to Master the Cost-Plus Model

Switching to a cost-plus pricing model is a big move, one that can be confusing - and costly if it isn't done right. That's where I come in.

I'm Bryan Kaplan, a construction coach who works closely with remodelers and custom home builders across North America. Over the years, I've helped many companies shift away from fixed-price projects and embrace a more structured, sustainable cost-plus approach.

I teach builders how to properly set up cost-plus contracts, clearly explain the model to clients, and run their jobs with better financial control. My focus is on building systems that reduce confusion for both contractors and homeowners, so it's easier to stay profitable without constantly guessing or scrambling.

Through my Cost-Plus Masterclass, I offer a step-by-step framework for managing cost-plus jobs with clarity and confidence. I cover everything from contract structure and estimating to tracking expenses and invoicing, all based on real-world examples and tools designed specifically for small to mid-size construction companies.

If you're already working with cost-plus or thinking about making the switch, my approach can help you tighten your systems and avoid the common headaches many builders face when navigating this model for the first time.

Managing a Cost Plus Approach Effectively with Buildwise

Managing cost-plus jobs requires more than transparency. You need the right tools to monitor costs, changes, and client communication. Buildwise was designed specifically for remodelers and custom home builders using this model, making the entire process easier and more efficient.

Why Buildwise Is the Best Tool for Cost-Plus Construction

Cost-plus construction requires a different kind of job-costing system that gives you real-time visibility into your numbers and keeps clients in the loop. Most project management or accounting tools are built around fixed-price models, so they often fall short when tracking actual expenses, managing markups, and generating client-facing budget updates.

Buildwise was created specifically for builders and remodelers running cost-plus projects. It's designed to handle the unique financial demands of this model. No more wrestling with spreadsheets, searching for receipts, or endless Google Drive folders.

How Buildwise Works with the Cost Plus Approach

Most out-of-the-box programs are designed for fixed-price work and fail to manage cost-plus jobs. Buildwise is purpose-built for cost-plus builders, with tools that support real-time cost tracking, change management, and automated client budget summaries.

Here's what makes Buildwise stand out:

Eliminates Manual Cost Tracking and Reduces Admin Work: 

Buildwise streamlines data capture to simplify bookkeeping work and minimize missing receipts and timesheets.

Industry-Unique Time Tracking App:

Buildwise's mobile app allows crew members to log their time quickly and easily, ensuring every labor hour is captured and cost-coded without delay.

Syncs Contractor Invoices to Job Costing Automatically:

Buildwise automates job costing by syncing inputs like receipts and trade invoices to reports in real time, keeping project costs up-to-date without relying solely on your bookkeeper.

QuickBooks Online (QBO) Sync:

Buildwise syncs project costs directly, tracking real-time project profitability, and organizing costs to help you invoice from QuickBooks much faster for cost-plus projects.

Streamlined Change Order Management:

Buildwise allows you to easily create, share, and approve changes with clients so nothing slips through the cracks. Get paid for all the work you do.

Clear, Transparent Reporting:

Buildwise generates automated client summaries to attach to your invoices to keep clients up to date on project costs.

Helps Contractors Forecast Profit Margins More Accurately: 

Buildwise's intuitive estimates builder lets you see your blended margin, so you know how changing the markup on individual construction categories or the cost of goods affects your profitability.

Because Buildwise is built by a cost-plus builder with over two decades of experience in residential construction, it addresses the real-world pain points contractors deal with every day. 

Missing timesheets, lost receipts, and inconsistent reporting can easily derail a cost-plus project. Buildwise brings everything into one system so nothing gets missed. You stay organized, get paid accurately, and have a clear view of your numbers at every stage.

Is the Cost Plus Approach Right for Your Business?

Cost plus pricing isn't one-size-fits-all and doesn't work for every remodeling or general contracting business. Here's a quick way to determine if a cost-plus approach is right for your residential construction business:

How to Successfully Transition to a Cost-Plus Approach 

Switching from fixed-price to cost-plus can feel like a big shift, but it's easier and more effective when you have a clear plan. Here are four steps to help you make the transition smoothly:

1. Educate Your Clients

Start by clearly explaining how a cost-plus contract works and why it benefits them. Most clients appreciate transparency, especially when they understand what they're paying for: actual costs plus a transparent markup, not a lump sum price.

2. Use a Well-Structured Contract

A well-structured agreement is essential. Be sure to define your fee structure, outline how costs are categorized, and spell out payment terms. The goal is clarity, so there are no surprises later.

3. Track and Report Costs Clearly

Cost tracking needs to be consistent and reliable. Tools like Buildwise, paired with QuickBooks, make it easier to organize expenses, compare estimated vs. actual costs, and keep both you and your client aligned on the project budget.

4. Build a Transparent Invoicing Process

Clients want to see where their money is going. Use detailed invoices and a client-facing budget summary to keep everything above board. This not only builds trust, but it also helps you get paid faster and with fewer questions.

The Bottom Line on Switching to a Cost-Plus Approach

Switching to a cost-plus pricing model is not just a trend in residential construction—it is a practical response to the real challenges remodelers and custom builders face every day. Fixed-price contracts might seem simpler on the surface, but they often involve guesswork, financial risk, and difficult conversations when unexpected costs arise.

Cost-plus contracts offer a more transparent and flexible way to manage projects. Clients see where every dollar goes, and you get paid fairly for the actual work you performed. This model creates a stronger partnership between contractors and homeowners, reducing cost disputes and scope creep while improving trust and communication.

However, running a cost-plus project well requires more structure, not less. It demands clear contracts, disciplined cost tracking, and a professional invoicing process. With the right systems in place—including tools like Buildwise and QuickBooks—you can manage these jobs efficiently and confidently.

Whether you are dealing with evolving designs, changing material costs, or clients who want more visibility into their investment, the cost-plus approach gives you a framework to handle it all. When combined with expert guidance and the right software, it becomes a powerful way to protect your margins, deliver high-quality work, and build stronger client relationships.