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, burdened labor rate, change orders, and gross profit per labor hour.
Job Costing
Job costing is the practice of allocating every dollar of cost (labor, materials, equipment, subcontractors, and overhead) to the specific job that consumed it, so each job produces one number: gross margin.
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 is the accounting method that recognizes contract revenue in proportion to how much of the job is done, usually measured as cost incurred to date divided by total estimated cost.
Read the full definitionRetainage
Retainage is the portion of each progress payment (commonly 5 to 10 percent) that a customer withholds until the project is substantially complete, as a guarantee of finished work.
Read the full definitionDays Sales Outstanding (DSO)
Days sales outstanding is the average number of days it takes to collect payment after invoicing, calculated as accounts receivable divided by revenue, times the number of days in the period.
Read the full definitionBurdened Labor Rate
The burdened labor rate is the true hourly cost of an employee including base wage plus payroll taxes, workers compensation, benefits, and other employment costs, not just the wage on their paycheck.
Read the full definitionChange Order
A change order is a documented change to a contract's scope, price, or schedule after work has started, and it is one of the largest and most commonly unpriced levers on contractor margin.
Read the full definitionGross Profit per Labor Hour
Gross profit per labor hour is the gross profit a business earns for each hour of scarce skilled labor, calculated as total gross profit divided by billable or worked labor hours. It is Level's core operating metric.
Read the full definitionCollection Rate
Collection rate is the share of invoiced revenue you actually collect within a set window, usually 30 days, calculated as cash collected divided by amount invoiced for that period.
Read the full definitionBilling Speed (Days to Invoice)
Billing speed is the number of days between finishing work and sending the invoice, and it is the first and cheapest lever a contractor has on cash flow.
Read the full definitionPull-Through Revenue
Pull-through revenue is the additional repair, replacement, and project work that a service agreement generates beyond the contract fee itself, because the recurring visit puts you in front of the customer when problems surface.
Read the full definitionService Agreement
A service agreement is a recurring contract where a customer pays a fixed fee for scheduled maintenance visits, in exchange for priority service and predictable coverage of their equipment.
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 is the revenue a single recurring contract produces in one year, normalized to twelve months so agreements of different lengths and billing cadences can be compared on equal footing.
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 clearest forward view of revenue and crew demand.
Read the full definitionRevenue per Technician
Revenue per technician is the total revenue a business produces divided by the number of field technicians, a quick read on how much output each unit of scarce skilled labor generates.
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 is the gap between what a job was estimated to cost and what it actually cost, and it is the single best measure of whether your estimating is telling you the truth.
Read the full definitionContribution Margin
Contribution margin is revenue minus the variable costs directly tied to producing that revenue (labor, materials, and other direct costs), showing how much each job contributes toward covering overhead and profit.
Read the full definitionLabor Burden
Labor burden is everything you pay for a worker beyond the base wage: payroll taxes, workers compensation, and benefits. Fully-loaded labor cost is the base wage plus that burden.
Read the full definitionMarkup vs Margin
Markup is the amount added to cost, expressed as a percent of cost or of the sell price. Margin is profit as a percent of the sell price. They are not the same number, and confusing them is a common pricing error.
Read the full definitionOverbilling and Underbilling
Overbilling is invoicing more than the work completed to date; underbilling is invoicing less. On a WIP schedule, it is the difference between the amount billed and the earned revenue (percent complete times contract value).
Read the full definitionClaim Denial Rate
Claim denial rate is the share of submitted insurance claims a payer denies, usually measured on first pass. It is a core revenue-cycle metric for medical and dental practices.
Read the full definitionProfit Fade
Profit fade is when a job's estimated profit shrinks as the job progresses, usually because the estimated cost to complete was set too low. A WIP schedule catches it early by tracking estimated cost at completion each period.
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