Fixed Price vs. Cost Plus: How Accounting Strategy Changes

The way a builder prices projects isn’t just a sales or client decision—it defines how the entire business tracks financials, manages risk, and protects margin.

Both fixed price and cost-plus contracts are widely used in residential and light commercial construction. Each has its own operational advantages, but they also demand different accounting strategies behind the scenes. Builders who don’t align their financial processes with their contract model often end up flying blind—or worse, bleeding margin they didn’t realize they were losing.

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Here’s a breakdown of what changes behind the scenes when you shift from one pricing model to another—and what builders need to track to stay profitable.

Fixed Price: Control Costs or Eat the Overruns

In a fixed price contract, the contractor agrees to complete a project for a predetermined price. This setup puts all the risk (and all the reward) on the builder.

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To protect profitability, cost control needs to be treated like a daily discipline, not a monthly review.

What Builders Must Track:

• Accurate job costs in real time: Delayed or miscategorized costs make it harder to catch issues before they impact the bottom line.
• Budget vs. actuals: Tracking this throughout the project helps PMs course-correct and avoid surprises at closeout.
• Approved change orders: These must be logged, priced, and approved quickly. Missed change orders mean missed revenue.
• Field purchases: Receipts and credit card charges must be tied to the right job and cost code to protect margin.

Cost Plus: Transparency Over Targets

Cost-plus contracts are more flexible. The client agrees to pay the builder’s actual job costs, plus a fee or percentage. It sounds simpler, but it shifts the focus from estimating and managing profit to maintaining airtight documentation and trust.

What Builders Must Track:

• Every expense tied to the right job and cost code: The entire billing model depends on accurate cost capture and proof of spend.
• Client-facing cost reports: Reports must be clean, detailed, and easy to understand—especially when billing is frequent.
• Timely billing: Cash flow issues creep in fast when invoices lag behind actual spend.
• Indirect costs: Overhead still exists in cost-plus models—it just needs to be covered by the fee structure, which requires careful planning.

Common Pitfalls in Both Models

Regardless of the pricing model, many of the same operational challenges appear:

• Uncoded or late expenses lead to confusion, rework, and missed billing
• Field-to-office breakdowns slow down approvals, payment tracking, and job cost accuracy
• Manual workflows increase the risk of double entries, missed change orders, or inconsistent reporting
• Delayed visibility means the team doesn’t know how a job is performing until it’s too late to fix

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These problems tend to compound as companies grow or take on more complex projects, making real-time accuracy more important than ever.

Aligning Your Tools With Your Contract Type

To succeed under either model, builders need workflows that bring speed, accuracy, and visibility to their job costing process. That means reducing reliance on manual data entry, tightening up how expenses and receipts are handled in the field, and ensuring the office has the information it needs to make timely financial decisions.

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Platforms like Adaptive, which are built for construction-specific accounting, can help support both models. By automating field expense tracking, simplifying approvals, and offering real-time visibility into budget performance, tools like these allow growing builders to keep their operations tight—whether they’re working under fixed price, cost plus, or a combination of both.

Bottom line

The contract you choose shapes your financial operations. Builders who understand the differences—and adapt their processes accordingly—set themselves up to win more work and keep more of the margin. For even more insight into the differences between fixed price and cost-plus contracts (and how they impact profitability) check out our conversation with Brad Robinson and Scott Bland on .

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