Variations, also known as change orders, can be used on Cost Plus jobs to record changes to the scope of work and give your client visibility of the expected additional costs.
Unlike a fixed-price job, a Cost Plus variation is not a fixed amount that the client will ultimately be charged. It provides an estimate of the expected cost of the change, while the client is ultimately invoiced based on the actual costs incurred.
Have a look at this video here for a quick overview, or see the full detail below.
Creating a Variation
Go to Variations/Change Orders on your job and select + to create a new variation.
You can add new materials, labour, additional work, substitutions, negative items, proposed start dates, delays and any other relevant details.
When adding new items, make sure they are assigned to the correct costing category. This keeps your actual job costing organised and ensures the costs are allocated correctly.
If your Cost Plus job has an estimate attached, the estimate must be Accepted before you can create or view variations. This isn't required for standalone Cost Plus jobs without an attached estimate.
Markup and Client Budget Expectations
Although the markup on a Cost Plus variation does not automatically flow through to the final invoice, we recommend including your expected markup when preparing the variation.
This gives the client a more realistic idea of what the change is likely to cost them, rather than showing only the raw cost.
For example, if the expected cost is $10,000 and you normally apply 20% markup, you may want the variation to show an expected client cost of $12,000.
Important: the markup used for the variation is not automatically carried through to the invoice. When the actual costs are ready to be invoiced, check the markup being applied.
If you used a different markup on the variation than the default markup for the job, you'll need to adjust the invoice markup if you want the final charge to use the same percentage.
Client Approval and Actual Costs
You can send the variation to the client for approval, including using a digital signature.
Once the variation is accepted, continue managing the work through the normal Cost Plus workflow. Purchase the materials, create work orders and track the actual costs as they are incurred.
The variation itself does not become an invoice for its estimated amount. Instead, the actual costs flow through to invoicing.
For example, if a variation estimates a change at $15,000 but the actual cost comes to $16,000, the client is invoiced based on the actual $16,000 cost, plus the applicable Cost Plus markup.
The simplest way to think about it is:
The variation sets the client's expectation. The actual costs determine the final invoice.