Change Orders: Pricing Extra Work Without Giving the Margin Away
The extra work costs $432. The change order is $720. The difference is the margin the job was priced to carry — and the most commonly donated money in contracting.
A remodeler is halfway through a $6,000 kitchen job — estimated to cost $3,600, priced at a 40% margin — when the customer asks for two pantry shelving units on top. Six extra hours at a $42 burdened rate, $180 of materials. The extra work costs $432. The instinctive answers are "just bill the hours" or "call it $450." Both are wrong, and by the same mechanism: they price the change as if margin were a luxury the original contract already paid for.
The margin-correct method
The original price wasn't cost plus a tip — it was cost priced to a margin. The change order should be built the same way: add the extra cost to the job's cost base, reprice the whole base to the same margin, and the difference is the change order.
| Step | Calculation | Amount |
|---|---|---|
| Extra cost | 6 hrs × $42 + $180 materials | $432.00 |
| New total cost | $3,600 + $432 | $4,032.00 |
| Priced to the same margin | $4,032 ÷ (1 − 0.40) | $6,720.00 |
| Change order | $6,720 − $6,000 | $720.00 |
| Margin check | ($6,720 − $4,032) ÷ $6,720 | 40.0% |
Billing the $432 of cost alone would have handed the customer $288 — the profit the extra work should have earned. Do that a few times a year and it's a van payment. The margin check on the last row is the point of the method: after a correct change order, the whole job still carries the margin it was priced at.
Why "hourly on changes" also dilutes
Billing extra work at your hourly rate — even a good one — prices it to a markup, not a margin, and usually a thinner one than the contract carries. On the example above, 6 hours at $85 would invoice $510: better than cost, but still $210 short of margin-correct, and the job's overall margin slides from 40% toward 36% without anyone noticing until the job costing check. If you prefer time-and-materials on changes, that's a legitimate policy — set the rate high enough that it lands on the margin, and write it into the contract.
Deductions work the same way, in reverse
When the customer deletes scope, the credit is not the original line's price. Remove the deleted work's cost from the cost base and reprice the whole job to the same margin — crediting the line price would give back more than the work was ever worth to you, plus its margin twice.
Price a change order with the change order calculator →
Frequently asked questions
How do I calculate a change order price?
Add the extra work's true cost to the job's cost base, then reprice the whole base to the job's original margin: (original cost + extra cost) ÷ (1 − margin), minus the price already quoted. On a $6,000 job priced at 40% margin with $432 of extra cost: ($4,032 ÷ 0.60) − $6,000 = $720.
Should a change order include profit?
Yes. The extra work consumes overhead, crew capacity and carries the same risk as the original scope. Billing cost alone donates the margin on that work — on the example above, $288 on one change order.
When should a change order be signed?
Before the extra work starts. A signed change order is a contract term; an agreed-after-the-fact one is a negotiation with your leverage already spent. Scope description, price and schedule impact, in writing, before the tools touch the new work.
Tools for this
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Open the Change Order Calculator and apply this guide with your own figures.
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