How Do You Calculate Percent Complete on a Construction Project?

Why This Matters

Percent complete is the foundation of construction accounting. It tells you how much revenue you've earned, whether you're ahead or behind, and what profit you're really making. Get this wrong and every downstream number is fiction.

Banks and sureties care deeply about how you calculate percent complete. They've seen contractors manipulate the number to make jobs look better than they are. Front-load material purchases to inflate percent complete. Ignore change orders in the denominator. Use last month's estimate instead of updating costs. These games always catch up with you.

The right way to calculate percent complete is simple: costs incurred to date divided by estimated total cost. Everything else is about getting those two numbers right.

How It Works

The basic formula:

Percent Complete = Costs to Date / Estimated Total Cost at Completion

Let's work through a concrete example. You're building a $1.5 million warehouse:

• Contract value: $1,500,000
• Original estimated cost: $1,200,000
• Costs incurred to date: $480,000
• Updated estimated cost at completion: $1,250,000 (you've revised based on actual productivity)

Percent complete: $480,000 / $1,250,000 = 38.4%

Now apply that percentage to your contract value:

• Earned revenue: $1,500,000 × 38.4% = $576,000
• Costs to date: $480,000
• Gross profit earned to date: $96,000

You've spent $480K and earned the right to recognize $576K in revenue. The difference is your earned gross profit so far.

If you've billed $600,000, you're $24,000 overbilled ($600K billed - $576K earned). If you've only billed $500,000, you're $76,000 underbilled.

Cost Method vs. Units Method

Most contractors use the cost-to-cost method I just described. It's the standard for commercial construction because it's objective. You spent $480K out of an estimated $1.25M, you're 38.4% done. Simple.

Some contractors use the units method for repetitive work. If you're building 40 identical townhomes and you've completed 16, you're 40% done. Multiply by contract value per unit, and you've got earned revenue.

The units method works great for production homebuilders or horizontal contractors doing linear work (miles of pipe, cubic yards of concrete). But for vertical commercial work with lots of moving parts, cost-to-cost is more accurate.

Never use the billings method. Some contractors say "we've billed 50% so we must be 50% complete." That's circular logic. Billings should follow earned revenue, not define it. I've seen companies that bill aggressive milestone schedules end up 70% billed when they're only 40% complete. Their WIP report is a disaster.

Common Pitfalls

Pitfall 1: Front-loading materials

You buy $200K of steel and store it on site. Your costs to date jump by $200K, but you've done zero installation work. Suddenly your WIP shows you're 15% complete when the site still looks empty.

This inflates percent complete artificially. The proper fix: track stored materials separately and exclude them from percent complete until they're installed. Your accounting system should have a "materials not yet installed" account. Most contractors don't bother with this refinement unless they're on large jobs with significant material front-loading.

Pitfall 2: Not updating your estimate

You estimated the job at $1.2M. You're now 40% complete and it's obvious you're running 10% over. But your WIP still uses the $1.2M estimate because nobody updated it.

Result: Your percent complete looks great (40%), but your projected margin is quietly evaporating. This is how margin fade hides. Update your estimated cost at completion every single month. Use actual costs to date plus realistic forecast for remaining work.

Pitfall 3: Ignoring change orders

You've got $150K in approved change orders. You've added them to contract value (good) but forgot to add the associated costs to your estimated cost at completion (bad).

Example:

• Original contract: $1.5M / $1.2M estimated cost
• Change orders: +$150K contract / +$120K estimated cost
• New numbers: $1.65M contract / $1.32M estimated cost
• Costs to date: $480K

If you calculate percent complete using the old $1.2M estimate, you get 40%. If you use the updated $1.32M estimate, you get 36.4%. That's a meaningful difference. Always include approved change order costs in your denominator.

Pitfall 4: Inconsistent cost allocation

You've spent $50K on project management time, but haven't allocated it to the job yet because you do that quarterly. Your costs to date look artificially low, so your percent complete looks artificially low, so your earned revenue is understated.

Or worse: you've accrued costs you haven't paid yet (subcontractor invoices sitting in AP), but they're not in your job cost system. Your percent complete is wrong because your costs are wrong.

Cost to date must include all costs incurred, whether paid or not. Accruals matter. Unallocated costs matter. If the work has been done, the cost needs to be in your WIP report.

The Bottom Line

Calculating percent complete correctly requires three things:

1. Accurate costs to date: Every dollar spent or accrued, allocated to the right job, including materials, labor, subs, equipment, and indirect costs.

2. Current estimate at completion: Not the bid estimate. Not last quarter's estimate. Your best current forecast of what the job will really cost when complete.

3. Consistency: Use the same method every month. Include change orders in both numerator and denominator. Update estimates based on actual performance.

Get these three things right and your percent complete will tell you the truth. Get them wrong and you're flying blind.

Your WIP report is only as good as the percent complete calculation behind it. Garbage in, garbage out. This is not a compliance exercise. This is how you know whether you're making money or losing it, in real time, while there's still time to do something about it.

Take it seriously.