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Ensure Profitable Change Orders
Change orders always increase sales but don’t necessarily increase profit margins.
Change orders always increase sales but don't necessarily increase profit margins. In fact, they often reduce margins. At the 2002 Remodelers’ Show, Bill Owens, CGR and president of Owens Construction Contracting Co. in Columbus, Ohio, suggested the following strategies for maintaining profits:
- Treat a change order as a profitable job and another sale and determine the fee accordingly.
- Sometimes the decision-maker is not the property owner. Communicate the change order to the property owner and be sure to get that person's signature on the change order form.
- Use the process as a means to manage expectations. Owens' change order form specifically warns that change orders will delay the project and the new schedule will depend on subcontractors' availability.
- Ask for payment upfront, when the change order form is signed. If the customer prefers to be invoiced, Owens charges a $75 administration fee to cover accounting, invoicing and time tracking.
- Track change orders across all jobs to determine trends and react appropriately. For instance, Owens said he noticed that homeowners often added interior painting, an item his company now automatically completes.