Time & Materials (T&M)

This model bills the client for the actual cost of labor at a predetermined hourly or daily rate, plus the cost of materials used, often with a markup.

• Pros: Simple to understand, provides flexibility for undefined scopes, lower risk for the contractor on uncertain projects.
• Cons: Provides little cost certainty for the client, can lead to disputes over hours worked or material costs, less incentive for efficiency.
• Best For: Small repair jobs, projects with highly uncertain or evolving scopes, emergency work.
• Considerations: Always set clear hourly rates (including overhead and profit), define markups on materials and subcontractors, establish a ‘not-to-exceed’ clause if possible to provide some client comfort, and provide detailed billing breakdowns.

Fixed-Fee (Lump Sum)

In this model, you provide a single, all-encompassing price for the entire project based on a detailed scope of work.

• Pros: High cost certainty for the client, incentivizes the contractor to be efficient, simplifies billing.
• Cons: High risk for the contractor if the scope is not perfectly defined or unforeseen issues arise, requires meticulous estimating, potential for scope creep if not managed strictly.
• Best For: Projects with well-defined scopes of work, standard build-outs, repeating project types.
• Considerations: Conduct thorough discovery before quoting, include clauses for change orders (and how they’re priced), build a contingency into your price to account for minor unknowns (e.g., 5-15% depending on project complexity and confidence in estimate).

Cost-Plus

This model bills the client for the direct costs of the project (labor, materials, subs) plus a predetermined fee or percentage for overhead and profit.

• Pros: Transparent for the client, less risk for the contractor than fixed-fee on uncertain projects, flexible as the scope evolves.
• Cons: Client doesn’t know the final price upfront, requires detailed cost tracking and reporting, less incentive for the contractor to minimize costs (unless the fee is fixed).
• Variations: Cost-Plus Percentage (e.g., Costs + 15%), Cost-Plus Fixed Fee (e.g., Costs + $10,000).
• Best For: Projects with significant unknowns, fast-track projects where design is finalized during construction, cost-sensitive clients who value transparency.
• Considerations: Clearly define what counts as ‘cost’, agree on the fee/percentage upfront, maintain excellent records and provide regular cost reports to the client.

Hybrid Models

• Combine fixed-fee for the core, well-defined scope with a T&M or Cost-Plus approach for potential unknowns or client-driven changes. For example, a fixed price for demolition and standard build-out, plus T&M for unexpected structural issues or bespoke finishes requested later.
• This balances client certainty on the main scope with flexibility for the variable elements.

Tiered Pricing

• Offer clients different packages or tiers of service or finishes at varying price points. For a basic office build-out, you might offer:
  • Tier 1 (Essential): Basic finishes, standard lighting, minimum code requirements (Fixed Fee: $50,000)
  • Tier 2 (Enhanced): Mid-range finishes, improved lighting, enhanced layout options (Fixed Fee: $75,000)
  • Tier 3 (Premium): High-end finishes, custom millwork, smart lighting/HVAC controls (Fixed Fee: $120,000)
• This allows clients to choose the option that best fits their budget and needs, can upsell clients into higher-value services, and simplifies the decision-making process for them.

Presenting these complex options—multiple models, hybrids, tiers, and add-ons (like upgraded flooring, specialized HVAC, network cabling)—can be challenging with static PDF proposals. This is where a tool specifically designed for interactive pricing comes in handy. PricingLink (https://pricinglink.com) allows you to build these configurable options into a shareable web link, letting clients select different tiers, add-ons, or finishes and see the price update in real-time. This streamlines the quoting process and provides a modern, transparent experience. While PricingLink is focused on this interactive pricing presentation, if you need a full proposal with e-signatures, detailed scope descriptions intertwined with pricing, and project timelines, you might explore comprehensive proposal software like PandaDoc (https://www.pandadoc.com) or Proposify (https://www.proposify.com). However, for businesses prioritizing clear, configurable price presentation specifically, PricingLink offers a powerful and affordable solution.

Conclusion

Choosing the right tenant improvement pricing models is a critical strategic decision for your business’s profitability and reputation.

Key Takeaways:

• Always start with a thorough understanding of your internal costs (direct and indirect) before setting prices.
• Time & Materials suits uncertain scopes, while Fixed-Fee is better for well-defined projects but carries higher contractor risk.
• Cost-Plus offers transparency but requires diligent tracking and client trust.
• Explore Value-Based Pricing by focusing on the client’s desired outcomes and business impact.
• Consider Hybrid models or Tiered Pricing to offer clients choices and better manage risk and scope.
• Clearly define scopes of work and change order processes regardless of the model used.

Moving beyond simple hourly rates or guesstimates empowers you to price more confidently, manage risk effectively, and capture the true value you provide to your tenant clients. Invest time in refining your estimating process and consider leveraging modern tools that can help you present your pricing options clearly and professionally. By strategically applying these pricing models, your tenant improvement business can achieve greater predictability and increased profitability in 2025 and beyond.