Change orders: where contractors quietly lose margin

When a job comes in under what you expected, the first instinct is to blame the estimate. Maybe you missed something. Maybe the lumber moved. So you pad the next bid a little and move on.

I think that’s usually the wrong suspect. Most margin isn’t lost in the bid. It’s lost after the contract is signed, one friendly “sure, we can do that” at a time.

Here are six beliefs I hear about change orders, and what I’d say to each.

Myth 1: “It’s a small thing, I’ll just take care of it”

Nobody gives away a big thing for free. They give away the outlet that moves eighteen inches, the extra can light, the swapped tile. Each one feels too small to paperwork.

Say you do six of those on a job and each costs you two hours of labor plus a trip for materials. That’s an illustration, not a statistic. The point is that no single favor hurts, and the pile does. And the homeowner never saw a bill, so they never learned it had a cost.

A change that’s too small to write up is too small to argue about, and it’s also too small to give away. Write it up at a price, even a small one.

Myth 2: “Asking for a signature makes me look greedy”

It does the opposite. A written change order tells the homeowner exactly what they’re getting, what it costs and how it moves the schedule. Surprise bills at the end are what damage trust, not clear ones in the middle.

Most homeowners are relieved to see it in writing. They also get to say “actually, skip that,” which is a real saving for them.

Myth 3: “The relationship is strong, we don’t need paper”

Memory is the weak point, not the relationship. Three weeks later the homeowner remembers “you said you’d take care of it” and you remember “I said I’d price it.” Both of you are being honest.

Paper protects the relationship from that moment. It’s also not legal advice: what a change order needs to say, and when it’s required, depends on your state and your contract, so have your attorney review your template.

Myth 4: “My crew lead will remember to tell me”

They mean to. But the request usually comes up in the middle of a task, in the driveway, from someone who isn’t the person who signs the contract. By the time it reaches the office, it’s already built.

The fix is not asking your leads to be more disciplined. It’s making the first step so small that it happens in the moment: a text, a photo, a voice note. Someone in the office turns it into the paperwork. (That office step is one we can hand to an assistant that drafts it for you to approve. See Change Orders and how AI helps with this.)

Myth 5: “I’ll sort it out on the final invoice”

This is the most expensive one. At the final invoice the work is done, you have no room to negotiate, and the homeowner is looking at a number bigger than the one they were expecting. That’s where a good job turns into a bad review.

If you find yourself explaining changes at closeout, the system already failed three weeks earlier.

Myth 6: “A bad margin is a pricing problem”

Sometimes it is. But before you raise prices, check whether you’re being paid for all the work you did. If you can’t see which jobs made money after changes, you can’t tell. Job costing is how you find out, and unbilled changes are one of the first things it shows.

The rule that fixes most of it

One sentence, and your whole team has to be able to say it:

No extra work starts until the change order is approved.

Not “until it’s priced.” Not “until we talked.” Approved, in writing, by the person who signs the contract. It takes some nerve the first few times, because you’re telling a homeowner “I’ll get that to you today” instead of “sure.” Do it anyway. Tell them it’s how you keep the final price honest.

If something truly can’t wait (a safety issue, say, or a hidden problem that stops the job), get a text approval right then and write it up properly that day.

Where to go from here

Here’s something to use this week without us: one page that goes in every job folder and every crew lead’s truck, plus the rule above.

The one-page change order:

1. Job and date. Customer name, address, job number, date of request.
2. Who asked. The name of the person who requested it and how (in person, text, email).
3. What’s changing. One or two plain sentences. “Move kitchen island outlet 18 inches left, add one outlet on the back wall.”
4. Price. Labor, materials, and any subcontractor cost, as separate lines, plus your normal markup.
5. Schedule impact. “Adds one day” or “No change.” Never blank.
6. New contract total. Original contract, plus this change, plus any earlier changes.
7. Approval. A line for the customer’s name and signature or electronic approval, and the date.
8. The sentence at the bottom: “Work on this change begins after approval.”

Then do the 10-minute test: pull your last finished job and ask your lead, “What did the homeowner ask for that wasn’t in the contract?” Count how many you can remember. Then check how many were billed. The gap is your number.

If you’d rather not run this by hand, book a free 30-minute call. We’ll show you how we’d set up that exact flow in the tools you already use, starting from a field note and ending with the approval, with a person signing off at every step that touches money or a client. You’ll get a written plan with a fixed price before you commit to anything.