Change Order Markup: How Much Should Builders Charge?
Change order markup is the percentage a builder adds on top of the direct cost of a change to cover overhead and profit. Most builders I talk to charge the same markup on change orders that they charge on the base contract, which commonly lands somewhere between 15% and 25% depending on the market and the builder, and many add a flat administrative fee on top. The right number for you is the one that covers your real overhead, leaves a profit, and is written into your contract before the job starts.
Changes are the most disruptive work you do on a house. They’re also the work builders are most tempted to discount, because the client is standing right there and nobody wants an awkward conversation. That’s how a profitable job turns into a break-even one.
What is a typical change order markup?
A typical change order markup matches the builder’s normal markup on the house. If you priced the home at cost plus 20%, changes get priced at cost plus 20%. Ranges of roughly 15% to 25% are common in residential work, but they vary a lot by market, by builder, and by how the contract is written.
Some contracts split the number into two pieces, one percentage for overhead and one for profit. Others state a single combined rate. Either works. What doesn’t work is leaving it out and trying to agree on a number in the middle of the build, when the client has all the leverage of a person who hasn’t signed anything yet.
How do you calculate a change order markup percentage?
Add up every direct cost of the change, then multiply by your markup. The formula is simple:
Change order price = direct cost × (1 + markup percentage) + administrative fee, if you charge one
The part builders get wrong is the direct cost, because they only count the obvious trade. A complete cost includes:
Every trade the change touches. Moving a wall after rough-in can involve the framer, electrician, plumber, HVAC, and drywall.
Materials, delivery, and tax. Including restocking fees on what you’re sending back.
Design and engineering. Revised drawings or an engineer’s letter, if the change needs them.
Time. Extra days on the schedule carry supervision, interest, insurance, and site costs.
Also keep in mind that markup and margin aren’t the same number. A 20% markup produces a margin of about 16.7%. If you’re fuzzy on that, I walk through the math in Builder Markup vs. Margin.
Should change order markup be higher than your contract markup?
There’s a good argument that it should be at least as high, and never lower. A change takes more management per dollar than the original scope did. You’re re-bidding, re-scheduling, and re-communicating work you already planned once, usually while the job is moving.
In practice, builders handle this one of three ways:
Same markup as the contract. Simple to explain and hard to argue with.
Same markup plus a flat administrative fee. This is my preference, because it covers the fixed effort every change takes regardless of size.
A higher markup on changes. Some builders do this. It’s defensible, but it needs to be disclosed in the contract and explained before signing, or it will feel like a penalty.
Whichever you choose, pick it once and apply it every time. Consistency is what keeps clients from negotiating each change like it’s a used car.
What is a change order fee, and should you charge one?
A change order fee is a flat administrative charge added to each change order, separate from the markup. It pays for the hours somebody on your team spends getting bids, revising drawings, updating the budget and schedule, and calling four trades to tell them the plan changed.
I think you should charge one, for two reasons. First, a small change takes nearly as much paperwork as a big one, and percentage markup on a $300 change doesn’t cover an hour of anyone’s time. Second, a fee makes clients batch their requests and think before asking. You’ll get fewer “while you’re at it” changes, and the ones you get will be real.
The amount is up to you and your market. Set it by estimating the staff time a typical change consumes, and state it in the contract.
How much to charge for a change order: a worked example
Here’s a simple one with round, hypothetical numbers. Say a client wants to add a gas line and a hose bib to the back patio after the slab is poured.
Plumber: $2,400
Concrete cut and patch: $1,100
Direct cost subtotal: $3,500
Markup at 20%: $700
Administrative fee: $250
Change order price: $4,450
Schedule impact: 2 days
The client sees the cost, the markup, the fee, and the days, all on one page. They sign it and pay it before the plumber shows up. If you want that page already built, our Custom Home Change Order Template comes with a guide to the pricing and the process around it.
How do you handle markup on credits?
When a client deletes something, you credit the direct cost. Whether you also credit the markup is a policy decision, and most builders don’t credit all of it. The estimating, planning, and purchasing work on that item already happened, and your overhead didn’t shrink because the client dropped the built-ins.
Common approaches are to credit cost only, or to credit cost plus a reduced percentage. Both are fair if they’re disclosed. What isn’t fair is surprising a client with the policy the first time they ask for a credit.
Where should your change order pricing be spelled out?
In the contract, in plain numbers. Your markup, your administrative fee, how credits are calculated, and when change orders are paid should all be in the change order clause the client signs on day one. Then walk them through it out loud before they sign.
A client who agreed to cost plus 20% and a flat fee in March has very little to argue about in August. A client who hears it for the first time in August thinks you’re making it up. For the full process, from request to payment, see how to write a construction change order.
Frequently asked questions
How much do contractors charge for change orders?
Most charge the direct cost of the change plus their standard markup, commonly somewhere between 15% and 25% depending on market and builder. Many also add a flat administrative fee per change order.
Is change order markup negotiable?
Before the contract is signed, everything is negotiable. After that, the contract rate applies, which is the whole point of putting it in writing.
Do you charge markup on a zero-cost change?
There’s nothing to mark up, but you should still write the change order so the deviation from the plans is documented. I covered why in Happy Client Hack: Zero Cost Change Orders.
Does change order markup apply on a cost-plus contract?
Usually, yes. On a cost-plus job the builder’s fee is typically applied to the added cost of the change the same way it applies to everything else. Check how your contract defines the fee, especially if it’s a fixed fee instead of a percentage.
BTW, if you want a change order form that shows cost, markup, and schedule impact the same way every time, grab our Custom Home Change Order Template over at the Building Optimal Shop, where you can check out the rest of our swag to build a better business. Proceeds go to benefit, Exponencialistas, my non-profit investing in entrepreneurs transforming their communities in Latin America.