Fixed price or hourly: which to quote

The laundry hookup needs to move to the other side of the basement. You can see the stack. You cannot see what is inside the joist bay, and the house went up in 1948. One number, or an hourly rate?

That is not a question about which model is better. Both are legitimate. It is a question about who pays for the surprise.

Every pricing model is a bet on the unknown

Under a fixed price, you own the overage. Under time and materials, the customer owns it. Nothing else matters nearly as much.

Take a small bathroom refresh. Say your billing rate is $85 an hour — use your own, because rates swing hard by trade and metro. You estimate 40 hours and $2,600 in materials carried at cost, so you write a fixed price of $6,000. Finish in 34 hours and the labor works out to about $100 an hour. Hit soft subfloor and spend 52 hours, and it works out to about $65 — roughly $1,020 of labor you never billed. On a job this size, that is often the whole margin.

The hours did not change your skill. They changed who was holding the risk when the floor came up.

Where each model belongs

Sort by how much of the job you can see before you price it.

Fixed price works when the job is measurable and repeatable — you have done it 30 times and your hours land in a predictable band. In the residential service trades, pure hourly is rarer than it looks: a diagnostic or dispatch fee first, then hourly or a flat repair price out of a price book. Never fix-price a site you have not walked; photos flatten grade and never show you the crawlspace.

The hybrid in the middle

Pure hourly is a hard sell on a large project. Pure fixed price on an unknown building is gambling. The middle takes two forms.

Fixed price with named allowances. You hold the labor fixed and carry a stated dollar figure for items the customer has not chosen yet. Say what the allowance buys. The convention AIA's general conditions use, copied by most residential contracts, is that the allowance covers the material delivered to the site plus tax, while your installation labor, handling, overhead and profit already sit inside the fixed price. Write it as a number, not a vibe: "Includes a tile allowance of $6.00 per square foot, material only, delivered; installation is included in the contract price."

Two things people get wrong. Set the figure off your own supplier's pricing; an allowance below what the showroom actually stocks is the most common way this comes apart. Allowances run both ways: over it, the difference goes on a written change order; under it, the customer is credited. If you plan to mark up the overage rather than pass it through at cost, say so in the clause — "the difference billed at cost plus 15 percent" — because a customer reading allowance assumes they pay the difference and nothing more.

Fixed price plus time and materials above a defined line. You price what was visible the day you walked the job, and name the boundary in writing: "Price covers replacement of the visible damaged siding on the north elevation. If sheathing or framing behind it is found to be rotted, that repair is billed at $95 per hour plus materials at cost plus 15 percent, after a written change order is approved."

The load-bearing words are visible and after a written change order is approved. A clause that only exists in your head is not a clause.

This is also the one place where the pricing model carries a legal consequence. Several states require a residential home improvement contract to state a total price. California's Business and Professions Code §7159 wants a "Contract Price" heading with the amount in dollars and cents, and makes a change order binding only if it is in writing and signed by both parties before that work starts. Massachusetts (M.G.L. c. 142A) requires the total amount agreed plus a payment schedule stated in dollars, and caps the up-front deposit at a third of the contract price, with more allowed only for special-order or custom material. Rules like these make an open-ended hourly agreement harder to write compliantly on residential work than a fixed price. Thresholds, required notices, deposit limits and cancellation language differ in every state, so confirm your own wording with your state licensing board or consumer protection agency, or a local construction attorney — not with an article.

What each model does to the customer's yes

A fixed price is easy to approve because it is easy to compare. With three estimates on the counter, the fixed numbers line up and the hourly one is hard to place. Most contractors will tell you a slightly higher fixed price often beats a lower hourly rate. Treat that as field experience, not a measured fact — there is no reliable published close-rate data broken out by pricing model. Track your own win rate by model for a season instead of guessing.

An open-ended hourly rate reads as a blank check to a residential customer who has been burned before. Commercial and property-management clients, who buy hours routinely, tolerate it better.

The fix for hourly is a ceiling. A not-to-exceed figure — "billed hourly at $95 per hour, not to exceed $2,800 without your written approval" — behaves close to a fixed price while leaving the risk where it belongs. You bill what you work, the customer knows the worst case, and there is a stated dollar figure on the page — which matters in the states above.

Putting the choice on paper

Whichever model you pick, the estimate has to say so in plain words, before the price. In DoneQuote you set hourly rates and fixed-price services once in your catalog, then mix them line by line in one estimate — fixed labor, an allowance line, an hourly rate for the unknowns — with the allowance and change-order wording saved as standard text.

The short version

• Fixed price moves the risk to you; hourly moves it to the customer
• Fix the price when the job is measurable and repeatable; go hourly when finding the problem is the work
• Never fix-price a site you have not walked, or a scope the customer has not finished choosing
• The common middle is fixed labor, named allowances, and time and materials above a written line
• Cap an hourly estimate with a not-to-exceed number so it competes with a fixed price
• Check your state's home improvement contract rules before quoting hourly-only on residential work; some require a stated total price

A customer who understands where the uncertainty sits will usually accept that it has to sit somewhere.