If your project is based on time and materials, the contract will specify the labor billing rates, material mark-up percentage, and may also include an overhead and profit percentage. If you stick with percent complete billing on all your projects and bill according to the percentage of costs, your income adjustments won’t affect your overall profits. The good thing about this method of billing is that it avoids over and under billing, which can affect your bottom line. For example, you could determine the percent complete for electrical work, multiply it by the contract amount for that scope of work, and get the amount that should be billed for that portion of the project. This method can be used to analyze a project as a whole or individual phases within the project. If the previously billed amount was $6,000, then this invoice should be for $9,000. If the total contract on a project is $150,000 and the project is 10% complete, the total amount billed should be $15,000. Subtract any previous invoices for the project, and you have the amount that needs to be billed for this period. Next multiply the percent complete by the total contract amount. For example, if a project has $10,000 in costs and it is supposed to cost $100,000 for the whole project, the project is 10% complete at this time. This will give you the percentage of completion. To calculate the amount to bill, start by comparing the total costs to date with the estimated costs for the whole project, dividing the costs to date into total costs. The job cost reports you’ll need for this type of billing are an estimate vs actual cost comparison and a contract summary showing the original contract amount and any approved change orders to date. In addition, many companies’ overall income calculations are based on this method, so billing this way makes the most sense. This method ensures that the overhead and profit amounts are spread evenly throughout the project. Costs and revenues are recognized based on the percentage of the project that has been completed during the billing period. Generally, percent complete is the most accurate way to bill a project. Cost-plus billings are similar to time and materials, but the mark-up structure looks different. Time and materials projects bill only for actual labor time and materials costs that have been performed during the billing period, plus a mark-up. Percent complete billings are based on the percentage of the work that has been completed up to that point. There are generally three types of pricing and billing structures for construction projects: percent complete, time and materials, and cost-plus. There is also the added benefit that you won’t be penalized down the line if your company recognizes income based on completion percentage. They give you an accurate picture of what the project costs are to date, and you can use that information to calculate what you should bill. Job cost reports are excellent tools to help you determine how much to bill. You want to ensure that you bill enough to cover your costs and make a reasonable profit. Knowing how much to bill on a construction project can be difficult to figure out.
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