Fixed price vs time and materials: the same remodel priced both ways
Use one set of quantities and costs to see who carries an overrun and how billing changes when the job takes less time.
Fictional estimating examples in US dollars. Replace quantities, costs and timing with your own records; payment and contract terms must comply with the project’s jurisdiction.
Start with identical scope and cost assumptions
The fictional baseline has 80 productive labor hours at $40 loaded cost ($3,200), $4,500 of materials, $2,500 of subcontractors and $500 of other direct costs. Total direct cost is $10,700. A 30% markup produces $13,910 and $3,210 of gross profit before overhead and taxes. A 30% markup is a 23.08% gross margin, not a 30% margin.
Model each billing approach explicitly
The fixed-price example quotes $13,910 for the defined scope with no separate risk reserve. The time-and-materials example bills actual approved direct costs plus 30%: $52 per labor hour and 1.30 times the other eligible direct costs. Real T&M agreements may use different labor rates, material markups, caps and reimbursable-cost definitions; this common basis makes the comparison inspectable.
The same job under three cost outcomes
Assume the extra work below is within the original scope and does not create an approved fixed-price change order. Otherwise the comparison would need a revised contract price.
| Outcome | Direct cost | Fixed-price invoice / gross profit | T&M invoice / gross profit |
|---|---|---|---|
| Baseline | $10,700 | $13,910 / $3,210 | $13,910 / $3,210 |
| 20 extra labor hours and $800 additional materials | $12,300 | $13,910 / $1,610 | $15,990 / $3,690 |
| 8 fewer labor hours and $200 lower materials | $10,180 | $13,910 / $3,730 | $13,234 / $3,054 |
What changes the choice
A well-defined scope and reliable quantities make a fixed price easier to estimate. Uncertain concealed conditions may call for discovery, allowances or a staged scope before committing. T&M makes actual hours and eligible costs central to the invoice, so agree on records, approval thresholds and any ceiling in advance. Neither label removes the need to define exclusions and changes.
Make the proposal explain the method
Show included work, assumptions, owner decisions, billing rates or fixed totals, documentation requirements and the process for approving changes. If using a not-to-exceed amount, define what happens when the forecast approaches it. Reconcile actual job costs afterward so the next estimate uses better evidence.