Four numbers off your job cost report and you get percent complete, earned revenue, gross profit and backlog, plus the figure that matters most: how far your billing has run ahead of, or behind, the work you have actually done.
Six calculations, and the whole picture falls out of them. None of it is difficult. What makes WIP hard is that one input, the total estimated cost at completion, is a judgment call, and every other figure moves when it does.
cost to date ÷ total estimated cost
The cost to cost method. Spend $294,400 of an estimated $512,000 and you are 57.5% complete. If cost to date passes the estimate, the estimate was wrong, not the job: revise it before you do anything else.
percent complete × contract value
Contract value means the original contract plus approved change orders. Work performed on a change order nobody has signed is usually not in the contract value until it is approved, which is exactly why it turns up in your underbillings instead.
billed to date − earned revenue
Positive is overbilled: a liability you still owe in work. Negative is underbilled: an asset, and cash you have already spent that nobody has paid you back for. On the balance sheet they are two separate accounts and are never netted.
total estimated cost − cost to date
contract value − earned revenue
Cost to complete is the cash the job still needs from you. Backlog is the revenue still to be earned, and it is one of the first numbers a bonding agent looks at, read against your working capital and net worth, when deciding how much more work you can take on.
margin at bid − margin at today's estimate
Compare the margin above against the margin you bid. The gap, in percentage points, is profit fade. Fade on a job that is barely started is the loudest early warning in construction accounting, and almost nobody goes looking for it.
if estimated cost > contract value:
recognize the whole loss now
Percentage of completion spreads profit as work is performed. It does not spread losses. The moment your estimate at completion shows red, the entire anticipated loss is booked, not just the part you have reached.
A $640,000 contract bid at a 20% margin, five months in. Here is every figure the calculator produces from four inputs, and what each one is actually telling the owner.
| Contract value | $640,000 |
|---|---|
| Total estimated cost | $512,000 |
| Cost incurred to date | $294,400 |
| Amount billed to date | $400,000 |
| Percent complete294,400 ÷ 512,000 | 57.5% |
| Earned revenue57.5% × 640,000 | $368,000 |
| Estimated gross profit640,000 − 512,000, a 20.0% margin | $128,000 |
| Gross profit earned to date368,000 − 294,400 | $73,600 |
| Cost to complete512,000 − 294,400 | $217,600 |
| Backlog640,000 − 368,000, carrying $54,400 of profit | $272,000 |
| Overbilled400,000 billed − 368,000 earned, 5.0% of the contract | $32,000 |
The job is healthy and the balance sheet is not quite what it looks like. $32,000 of what has been invoiced on this job has not been earned yet. It is a contract liability, and it gets worked off over the remaining $217,600 of cost. Treat it as profit and the last two months of this job are funded out of the next job's deposit.
Five percent is comfortable. Fifteen is a warning. There is no formal rule, but a contractor overbilled 15% or more across the whole book has usually front-loaded a schedule of values, and the cash position looks strongest at exactly the point where the remaining work is least profitable.
Now check it against the bid. If this job was bid at 23% and today's estimate says 20.0%, three points have gone somewhere. Three points of $640,000 is $19,200, roughly a quarter of the profit earned so far, and it is far easier to find in month five than at closeout.
A profit and loss statement tells you what happened last month across the whole company. WIP tells you what is going to happen, job by job, while there is still time to change it.
Billing ahead of the work is normal and often deliberate, and it is also a loan from your customer that gets repaid in labor and material. A company heavily overbilled across every open job has borrowed against work it has not done, and the repayment lands in the quarter the pipeline goes quiet.
Every underbilled dollar is payroll and material you have already paid for and not invoiced. Usually it is a change order performed before it was signed, or a schedule of values with no line for the work that actually got done. Either way the fix is billing, not borrowing.
Almost no job announces that it has lost money. The estimate at completion drifts up a little each month, the margin drifts down, and nobody notices until closeout. Comparing today's margin against the margin you bid, every month, is how the drift becomes visible while it is still small.
When cost to date passes the total estimated cost, the math says the job is more than 100% complete, which is nonsense. What it actually means is that nobody has revised the estimate since the overrun, so every revenue and profit figure derived from it has been wrong for months.
Four numbers give you the whole picture. Percent complete is cost incurred to date divided by the total estimated cost. Earned revenue is that percentage multiplied by the contract value. Compare earned revenue with what you have actually billed, and the difference is your over or under billing.
That is the cost to cost method, and it is what almost every contractor, CPA and surety uses.
Overbilled means you have invoiced more than the work has earned. Some of that invoice is still sitting in receivables and some of it is retainage nobody will release for months, and none of it is yours yet: it is a liability you will work off. Being heavily overbilled across every job is the most common reason a contractor looks profitable in the spring and runs out of money in the autumn.
Underbilled means the work has earned more than you have invoiced. You have already paid for that labor and material and nobody has paid you back, so you are financing the job yourself. Usually the cause is an unsigned change order or a pay application that has not gone out.
Yes. Front-loading a schedule of values a little is standard practice and it funds the mobilization nobody pays for. The question is scale and direction. A few percent on one job is routine; fifteen percent across the whole book means you have borrowed heavily against work you have not done, and the repayment lands in the quarter the pipeline goes quiet.
The number that matters is the trend. If the same job is more overbilled every month, the billing is running away from the work.
Profit fade is the estimated margin on a job falling as the job progresses. You bid it at 16%, three months later the estimate at completion says 13%, and three points have quietly gone. It happens for the same handful of reasons every time: work performed on change orders nobody signed, a bid that missed scope, and a cost estimate nobody revised after the first overrun.
You catch it by comparing the margin this calculator shows against the margin you bid, every month, on every job. It is far easier to find in month three than at closeout.
The loss is not spread across the remaining months. Once your estimate at completion shows the job finishing in the red, the entire anticipated loss is recognized immediately, in the period you work it out. Percentage of completion governs profitable jobs; loss contracts get accrued in full.
This calculator tells you when your total estimated cost has passed your contract value, and by how much.
The cost to cost calculation used here is an input method of measuring progress toward satisfying a performance obligation, which is what ASC 606 permits and what nearly every construction contractor applies. Under ASC 606 your underbillings are a contract asset and your overbillings are a contract liability. They sit on opposite sides of the balance sheet and are never netted against each other.
It is a calculator, not an audit. Unapproved change orders, claims and variable consideration all need judgment no browser tool can make for you.
You can, by entering the totals for every open job at once, and it is a reasonable way to see your overall billing position. Be aware that totalling everything hides the offsetting: three jobs overbilled $200,000 and three underbilled $190,000 look like a comfortable $10,000 when both halves are genuinely wrong.
Run your three largest jobs separately first. That takes about five minutes and is usually where the surprise is.
Nowhere. Every figure is calculated in your own browser, nothing is sent to us, and there is no form to fill in before you see your results.
This calculator is only as good as the cost estimate you feed it, and keeping those current across a whole book of work is the part contractors let slip. We build the WIP schedule, tie it back to the P&L and tell you which jobs need a conversation.