Free tool

Change Order Calculator

Pricing a change order is stacking costs in the right order and knowing what you actually made. Overhead goes on cost, profit goes on the subtotal, tax goes on the total, and the order matters. This shows every step, and reports markup and margin side by side — because they are not the same number and treating them as one is how contractors quietly lose money.

Change order amount

$39,538.13

Labor: $7,800.00
Direct cost: $31,250.00
Overhead: $3,125.00
Subtotal: $34,375.00
Profit: $2,750.00
Total before tax: $37,125.00
Tax: $2,413.13
Markup on cost: 18.8%
Margin on price: 15.82%

How the calculation works

Labor: Lump sum + (Hours × Rate)
Direct cost: Labor + Materials + Equipment + Subcontractors + Permits + Other
Overhead: Direct cost × Overhead %
Subtotal: Direct cost + Overhead
Profit: Subtotal × Profit %; On the subtotal, so overhead is covered before profit is taken.
Total before tax: Subtotal + Profit
Tax: Total before tax × Tax %
Change order amount: Total before tax + Tax
Markup: (Total before tax − Direct cost) ÷ Direct cost; Measured against cost.
Margin: (Total before tax − Direct cost) ÷ Total before tax; Measured against price. Always lower.

Worked example

Labor — 120 hrs at $65: $7,800.00
Materials: $12,500.00
Equipment: $2,200.00
Subcontractors: $8,000.00
Permits: $450.00
Other: $300.00
Direct cost: $31,250.00
Overhead at 10%: $3,125.00
Subtotal: $34,375.00
Profit at 8%: $2,750.00
Total before tax: $37,125.00
Tax at 6.5%: $2,413.13
Change order amount: $39,538.13
Markup on cost: 18.80%
Margin on price: 15.82%

Markup and margin describe the same $5,875 from different sides. Markup divides it by cost, margin by price, so margin is always the smaller number. Quote a job on 20% markup believing it is a 20% margin and you are 3.33 points short on every change order you write.

How to use it

01Enter labor as hours and a rate, or as a lump sum, or both — they are added together.
02Enter every direct cost separately rather than lumping them, so the change order can be defended line by line if it is questioned.
03Set overhead as your actual burden rate, not a habit. It is the cost of running the business that this work consumes.
04Profit is applied after overhead so you are not taking profit on money that was never yours.
05Read markup and margin together. Markup is what you added; margin is what you kept.

Common mistakes

Treating markup and margin as the same thing

A 20% markup on cost is a 16.67% margin on price. Quoting on one while budgeting on the other loses money on every change order, and it compounds silently because each one still looks profitable.

Applying profit before overhead

Taking profit on the direct cost and then adding overhead means overhead is coming out of profit. Overhead is a cost of doing the work; it belongs in the base that profit is calculated on.

Marking up tax

Sales tax is collected on behalf of the state and was never yours to mark up or keep. It goes on the total at the end, and it is excluded from markup and margin here for that reason.

Leaving out the indirect impact

A change order that extends the schedule costs more than its direct work — general conditions, supervision and equipment on site for longer. If your contract allows it, price that impact rather than absorbing it in Other.

Questions

How do you price a construction change order?

Total the direct costs of the added work, add overhead as a percentage of those costs, add profit on the resulting subtotal, then apply tax to the total. Each layer sits on the one below it.

What is the difference between markup and margin?

Markup measures what you added against your cost; margin measures it against the price the customer pays. The same dollars produce a larger markup percentage than margin percentage — 20% markup is 16.67% margin.

Should overhead go before or after profit?

Before. Overhead is a cost of performing the work, so profit is calculated on cost plus overhead. Reversing them means your overhead is being funded out of your profit.

Is tax included in markup and margin?

No. Both are measured on the pre-tax figure, because tax is collected for the state rather than earned by the contractor.

What overhead rate should I use?

Your own. It is the proportion of business running costs the work consumes, which depends on your annual overhead and volume — an industry average tells you nothing useful about your business.