Margin is easier to review while the price is still being built. Clear scope, current buying evidence, realistic labour and a programme that matches preliminaries give the business a better basis for deciding what it can afford to offer.
Keep the price layers separate
- Base cost: the work the business expects to deliver.
- Allowances: selections or work not fully defined.
- Risk treatment: identified uncertainty and its agreed treatment.
- Overhead and profit: the business’s approved commercial recovery.
- Tax: the actual project basis, shown consistently in the output.
A blanket percentage does not explain a missing package. If work can be identified, give it a pricing line or a clear qualification. This makes the cost easier to challenge and stops uncertainty disappearing inside a familiar total.
Margin and mark-up give different prices
Hypothetical arithmetic. These figures are not a recommended pricing policy or a customer outcome.
| Method on £162,000 cost | Selling price | Profit above that cost | Margin on selling price |
|---|---|---|---|
| 20% mark-up on cost | £194,400 | £32,400 | 16.67% |
| 20% margin on selling price | £202,500 | £40,500 | 20% |
Mark-up is calculated on cost. Margin is calculated on selling price. With a 20% target margin, £162,000 ÷ 0.80 = £202,500. Use the method your business has approved and check whether any package already contains an uplift before applying it again.
The margin definition and mark-up definition show the distinction. Keep overhead and profit treatment visible in the internal working.
Review the packages that can change the result
Start with large amounts and weak evidence. A labour duration, unquoted services package, access assumption or expired material price can move the result more than a minor rate correction. Use your supplier and subcontract evidence rather than treating a previous project as a current quotation.
Test both direct cost and programme. If a twelve-week price needs sixteen weeks of supervision and welfare, identify those additional time-related costs. A rate can be correct while the duration is wrong.
A programme risk example
Illustrative preliminaries calculation.
Suppose supervision and welfare cost £1,500 a week on a stated twelve-week programme. Four additional weeks add £6,000. The business needs to review the programme and quote basis before deciding whether that exposure is accepted, priced or clarified. It would be misleading to call the £6,000 “saved profit” just because a review identified it.
Use the risk register to keep the source, consequence, treatment and owner together. Then carry the accepted basis into the estimate and client wording.
Set a useful approval rule
Decide which decisions the estimator can make and which need director, contracts or specialist input. Examples include an unquoted high-value package, unfamiliar design responsibility, an unusually long validity period or an access condition outside the normal delivery method.
Keep the approval record short: the issue, evidence, chosen treatment, effect on price and person who approved it. A record is more useful than an unexplained contingency that nobody can describe later.
Carry the basis through to the client
The client pack should explain material allowances, scope boundaries and assumptions clearly. It does not need every internal profit calculation. After negotiation, check that the accepted price still matches those boundaries and revise it deliberately when the scope changes.
Use the price review checklist to reconcile the approved working and issued quote. A customer case showing a price difference can explain the review process; it cannot establish that a business recovered that difference as profit.
A useful next step
Fixed-price risk register
Turn a project uncertainty into an owned action and a clear pricing treatment.
Download blank worksheetSee the completed exampleA construction team checks an extension estimate
See how a labour and material breakdown helped a team review a price difference against its existing estimate.
Read the experienceFollow the practical workflow
Use the relevant lesson while preparing, reviewing or issuing your own project.
Open the matching lessonPut this into practice on your next project
Your first complete project is free, including the estimate, risk information, client reports and internal reports. Bring your drawings, specification and site notes, then review the working against how your business will deliver the job.
FAQs
How can builders protect margin on fixed-price work?
Review scope, important costs, programme and uncertainty before approving the offer. Keep the commercial treatment and client wording consistent with that reviewed basis.
Should contingency be shown separately?
Keep it visible internally and explain what it covers. Client presentation depends on the offer, but defined allowances and material assumptions should remain understandable.
