Contractor Finance Glossary
The contractor finance terms that decide whether a job makes money
Plain-English definitions of the contractor finance terms that decide whether a job makes money: job costing, WIP schedules, percentage of completion, retainage, DSO, labor costs and margin, with related service-business, staffing and healthcare collection terms.
Related terms cover service businesses, staffing and healthcare collections. Research references describe their stated populations and methods, not a count of Level clients.
Job Costing
Job costing assigns revenue and direct job costs (burdened labor, materials, equipment and subcontractors) to the same job so its gross profit and gross margin can be calculated on a stated cost basis.
Read the full definitionWork in Progress (WIP) Schedule
A WIP schedule is a job-by-job report that compares how much of each contract you have earned (based on percentage of completion) against how much you have billed, revealing whether each job is overbilled or underbilled.
Read the full definitionPercentage of Completion (POC)
Percentage of completion recognizes revenue as a qualifying contract is performed over time. Cost-to-cost is one input method for measuring that progress; it requires reliable estimates and adjustments for costs that do not depict performance.
Read the full definitionRetainage
Retainage is the part of a progress payment withheld until release conditions in the contract are met. The rate and release timing depend on the contract and applicable jurisdiction.
Read the full definitionDays Sales Outstanding (DSO)
Days sales outstanding (DSO) estimates the days of credit revenue represented by billed accounts receivable. It is a receivables-to-revenue ratio expressed in days, not the observed average payment delay for individual invoices.
Read the full definitionBurdened Labor Rate
The burdened labor rate is the hourly cost of an employee on a stated paid-hour or productive-hour basis, including base wage, employer payroll taxes, workers compensation, benefits and other employment costs.
Read the full definitionChange Order
A change order documents an approved change to contract scope, price or schedule after the contract is signed. Unpriced extra scope adds cost without matching approved revenue.
Read the full definitionGross Profit per Labor Hour
Gross profit per labor hour divides gross profit by a stated labor-hour basis for the same period. It is Level's core operating metric, but paid, worked and billed hours answer different questions.
Read the full definitionCollection Rate
A cohort collection rate is the share of a defined invoice group collected within a specified window. A period cash-to-billing ratio is a different measure and can exceed 100%.
Read the full definitionBilling Speed (Days to Invoice)
Billing speed measures the lag from a defined billing-ready event to invoice issue. Service-job completion and a contractual progress-billing date require separate comparisons.
Read the full definitionPull-Through Revenue
Pull-through revenue describes repair, replacement and project revenue associated with service-agreement customers beyond the agreement fee. Association with an agreement does not prove the agreement caused the work.
Read the full definitionService Agreement
A service agreement is a recurring contract where a customer pays a recurring fee for scheduled maintenance visits and listed benefits such as priority service. Repair coverage depends on the agreement.
Read the full definitionQuote Conversion Rate
Quote conversion rate is the share of quotes that turn into won jobs, and it can be measured two ways: against every quote sent, or against only the quotes a customer actually decided on.
Read the full definitionAnnual Contract Value (ACV)
Annual contract value normalizes contracted recurring fees to twelve months. It is distinct from recognized revenue and collected cash, so compare those amounts separately.
Read the full definitionProgress Billing (AIA Billing)
Progress billing is invoicing a long project in stages as work is completed, rather than in one bill at the end, usually against a schedule of values on commercial jobs (the AIA format).
Read the full definitionBacklog
Backlog is the total value of signed, contracted work that has not yet been performed, and it is a contractor's direct forward view of revenue and crew demand.
Read the full definitionRevenue per Technician
Revenue per technician divides a stated revenue scope for a period by average field-technician FTE for the same period. It measures revenue volume per unit of field capacity, not profit or productivity on its own.
Read the full definitionBlended Bill Rate
Blended bill rate is the single average hourly rate you charge customers across all technicians and skill levels, calculated as total labor revenue divided by total billed labor hours.
Read the full definitionCost Variance (Estimate Accuracy)
Cost variance compares a job's cost with its revised approved budget (original estimate plus approved changes). It uses actual cost for closed jobs and estimated cost at completion for open jobs, to investigate estimating, execution and scope patterns.
Read the full definitionContribution Margin
Contribution margin is revenue minus costs that vary with the activity or decision, showing the amount available for fixed costs and profit. Direct cost is not always variable cost.
Read the full definitionLabor Burden
Labor burden is everything you pay for a worker beyond the base wage: employer payroll taxes, workers compensation, benefits and other employment costs. Fully-loaded labor cost is the base wage plus that burden.
Read the full definitionMarkup vs Margin
Markup is the amount above cost expressed as a percent of cost. Margin is that amount expressed as a percent of selling price. Applying a target margin as if it were a markup underprices a job.
Read the full definitionOverbilling and Underbilling
Overbilling means cumulative billings exceed revenue earned to date; underbilling means earned revenue exceeds billings. The WIP position is billings minus revenue earned under the applicable progress method. Underbilling can reflect unbilled work, a billing restriction or a stale cost estimate.
Read the full definitionClaim Denial Rate
First-pass claim denial rate is the share of adjudicated initial insurance claim submissions a payer denies. State how pending claims are treated. A final-denial rate follows claims through later resolution and uses a different basis.
Read the full definitionProfit Fade
Profit fade is when a job's estimated profit shrinks as the job progresses, which can reflect an underestimated remaining cost or changes in the job's expected economics. A WIP schedule catches it early by tracking estimated cost at completion each period.
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