Fixed price or hourly: which to quote

Use a fixed price when you can define and cost the work, and an hourly or time-and-materials arrangement when the amount of work remains uncertain. You can also fix the known scope and state allowances or additional rates for the unknowns. Put the basis, limits and approval process in writing.

Who pays when the work takes longer?

Under a fixed price, you own the overage. Under time and materials, the customer owns it. That allocation depends on the written scope, any ceiling and the change terms.

For an illustrative 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. That reduction comes out of the amount available for overhead and profit.

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 scope is measurable and your records support a reliable time allowance. Inspect the conditions that materially affect price; if photos or supplied measurements leave something uncertain, state the assumption and approval process rather than treating it as confirmed.

Combine fixed scope with allowances or additional hourly work

Two useful combinations let you price known work while explaining what remains uncertain.

Fixed price with named allowances. Carry a stated amount for a selection the customer has not made. Specify whether it covers purchase, delivery, tax, installation and markup; do not rely on the word "allowance" alone. For example: "Tile allowance: 100 square feet at $6.00 per square foot for material and delivery, before any applicable sales tax. Installation is included in the fixed labor price." Complete the tax treatment for the actual job before sending.

Base the allowance on supplier prices. Write how an overage or unused allowance changes the total, including any markup. Record the selected product, price difference and schedule impact, and obtain customer approval before ordering or doing the extra work.

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 the customer approves a written description, price and schedule impact."

The load-bearing words are visible and after the customer approves a written description, price and schedule impact. A clause that only exists in your head is not a clause.

State contract rules can affect how you present the price. California CSLB requires written home improvement contracts over $500 and signed written changes before the changed work. Massachusetts contract guidance requires a total and payment schedule; its advance-payment limit is the greater of one-third of the contract price or qualifying special-order costs. Check which rules cover your project before using an open-ended hourly agreement. A stated ceiling alone does not establish compliance.

Give hourly work a limit and an approval point

A fixed total is easier to compare than an hourly rate without an estimated quantity. For hourly work, provide an expected range and explain what could change it.

A not-to-exceed term gives the customer a limit: "Labor billed at $95 per hour, not to exceed $2,800 without your written approval." Specify separately what that ceiling includes, such as materials, travel or tax. Stop before exceeding it and submit the additional scope, price and schedule impact for approval.

Putting the choice on paper

Whichever model you pick, state it clearly on the quote. DoneQuote lets you save fixed-price services and hourly selling rates in your catalog. Put included work in the priced scope and possible extra rates in the separate Rates section, outside the total. Save reusable allowance and change wording in your default agreement terms, then review it for the actual job before sending.

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
• Confirm the conditions behind a fixed price and write allowances for unselected items
• 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

Explain what is known, what remains uncertain and when a new approval will be needed.