Allowance

What is an Allowance?

An allowance is a predetermined dollar amount included in a construction contract to cover the cost of specific materials, fixtures, or finishes that haven't been selected yet when the contract is signed.

Allowances give clients flexibility to choose materials within a set budget while allowing contractors to provide accurate estimates before all material selections are finalized.

How Allowances Work

Here's the typical allowance process:

1. Contract includes allowance: "$2,000 allowance for kitchen faucet and hardware"
2. Client shops within budget: Client selects items totaling $1,800
3. Credit issued: Client receives $200 credit on final invoice
4. Or overage charged: If selections total $2,300, client pays additional $300

Common Items for Allowances

Kitchen & Bath

• Faucets and fixtures
• Cabinet hardware
• Countertops
• Tile and flooring
• Light fixtures
• Appliances

Throughout the Home

• Interior doors
• Window treatments
• Paint colors
• Electrical fixtures
• Landscaping materials
• Driveway materials

Benefits of Using Allowances

For Contractors

• Accurate bidding without waiting for all material selections
• Risk reduction by setting clear budget parameters
• Faster estimates and contract signing
• Protection from unlimited material upgrade costs

For Clients

• Flexibility to choose materials after contract signing
• Budget clarity knowing exactly what's included
• Upgrade options with transparent additional costs
• Time savings by not delaying project start for every selection

How to Set Fair Allowances

Research Market Prices

Base allowances on realistic market prices for quality materials that match the project level.

Be Specific About What's Included

Clearly define what the allowance covers:

• "Allowance includes faucet and installation labor"
• "Does not include plumbing rough-in modifications"

Set Reasonable Amounts

Allowances should reflect realistic expectations. Too low creates guaranteed overages; too high inflates your bid.

Include Installation

Specify whether allowances include just materials or also installation labor.

Allowance Best Practices

Document Everything

• List all allowances clearly in your contract
• Specify exactly what each allowance covers
• Note any exclusions or limitations

Set Clear Timelines

Establish deadlines for material selections to keep projects on schedule.

Provide Guidelines

Help clients understand what quality level the allowance represents by showing examples.

Track Selections Carefully

Maintain detailed records of all client selections and their costs.

Handle Overages Professionally

Present overage costs clearly and get written approval before proceeding.

Common Allowance Mistakes

Setting allowances too low: This guarantees client frustration and payment disputes.

Being vague about inclusions: Unclear allowances lead to scope disputes.

Not setting selection deadlines: This can delay your entire project schedule.

Forgetting about installation: Always clarify whether allowances include labor costs.

Managing Allowances with Software

Professional contractor software helps you:

• Create standardized allowance language for contracts
• Track client selections against allowance budgets
• Calculate overages automatically
• Generate clear documentation for clients
• Maintain records for future similar projects

The Bottom Line

Allowances are powerful tools for providing accurate estimates while giving clients material selection flexibility. The key is setting realistic amounts, being crystal clear about what's included, and managing the selection process professionally.

When done right, allowances speed up your sales process and reduce project risks while keeping clients happy with their material choices.