Calculating Gross Profit Margin

How do I calculate gross profit margin?

We are often asked how to calculate gross profit margin (gross profit expressed as a percentage). Here is the formula:
Gross Margin = (Income – Cost of Goods Sold) / Income x 100

Here is the gross profit margin calculation expressed in absolute terms:
Gross Margin = Income – Cost of Goods Sold + Income x 100

Gross Profit Margin Calculation Example:

A motor sells costs you $35.00 and you sell it for $125.00. Your gross profit margin (gross margin) is

Step One: $125.00 – $35.00 = $90.00.

Step Two: $90.00 divided by $125.00 = .72

Step Three: .72 x 100 = 72

Gross Profit Calculation Notes

  1. Gross Profit Margin is the same thing as Gross Profit; just expressed as a percentage.
  2. In our example, Income is the same things as the price you are selling the item for.
  3. Cost of Goods Sold is the price you paid for the item.
  4. Please also check out this free price calculator: Labor and Parts Break-Even Price Calculator
  5. See these related articles: How to Calculate Selling Price (retail price) and Margin versus Markup

 

Margin Versus Markup

Markup Versus Gross Profit Margin

We’re glad you took an interest in this topic on margin and markup. This topic explains the difference in gross profit margin (or profit margin) and price markup.

There is a big difference between markup and gross profit. In fact, this is one of the most common errors contractors make and it can cost you big.

Markup and margin, what’s the difference?

Short Answer

Markup is a percentage of the cost.
Margin is the same dollar amount expressed as a percentage of the selling price.

Example
Item costs $1.00 Items sells for $1.50.
Markup is .50 or 50 percent of the cost.
Margin is .50 or 33 a percent of the selling price.

A More Detailed Explanation

Markup Defined

Markup is the difference between invoice cost and selling price. It may be expressed either as a percentage of the selling price or the cost price and is supposed to cover all the costs of doing business plus a profit. Whether markup is based on the selling price or the cost price, the base is always equal to 100 percent. Markup is the additional amount added to a sales proposal (bid) or price and which contain overhead, profit, excess costs, etc.

Margin Defined

The difference between net sales and the cost of goods sold. It is also referred to as gross profit. Gross Profit/Total Sales. The percentage of every dollar earned that can be used to pay general and administrative expenses.

Margin Versus Markup Formula

Applying a simple formula will determine how much the margin will be based on a percentage that the contractor expects to make. The contractor will set a margin that ensures that they will be competitive in the local market. It may or may not reflect the actual value of an item. In your example, we are looking to make an 60% margin assuming that our item costs $10. To figure out our sales price we use the following formula, expressing the margin as a decimal (i.e., 60% = .60):

Retail Price = (Cost of item)/(1, desired margin)

Markup Versus Margin Table

Markup % Gross Profit Margin % Multiplier %
20 16.67% 120
21 17.36% 121
22 18.03% 122
23 18.70% 123
24 19.35% 124
25 20.00% 125
26 20.63% 126
27 21.26% 127
28 21.88% 128
29 22.48% 129
30 23.08% 130
31 23.66% 131
32 24.24% 132
33 24.81% 133
34 25.37% 134
35 25.93% 135
36 26.47% 136
37 27.01% 137
38 27.54% 138
39 28.06% 139
40 28.57% 140
41 29.08% 141
42 29.58% 142
43 30.07% 143
44 30.56% 144
45 31.03% 145
46 31.51% 146
47 31.97% 147
48 32.43% 148
49 32.89% 149
50 33.33% 150
51 33.77% 151
52 34.21% 152
53 34.64% 153
54 35.06% 154
55 35.48% 155
56 35.90% 156
57 36.31% 157
58 36.71% 158
59 37.11% 159
60 37.50% 160
61 37.89% 161
62 38.27% 162
63 38.65% 163
64 39.02% 164
65 39.39% 165
66 39.76% 166
67 40.12% 167
68 40.48% 168
69 40.83% 169
70 41.18% 170
71 41.52% 171
72 41.86% 172
73 42.20% 173
74 42.53% 174
75 42.86% 175

So if you mark up a $100 part by 25%, you will be selling it for $125 with a gross profit margin of 20% and a gross profit of $25. This is where many contractors make their mistake. They are told their overhead is 25% so they mark up equipment and items by 25%. That results is a 20% gross profit margin and creates a net loss of 5%.

Please also see: How to Calculate Gross Profit Margin, How to Calculate the Selling Price of an Item, and HVAC Dictionary of Accounting Terms and Definitions

 

©2006-2012 MrHVAC.com LLC, All Rights Reserved. You may duplicate this document provided the copyright notice stays intact and the document is not redistributed or offered for sale.

Strategic Service Parts Markup System

Strategic Parts Multiplier System

The idea behind Strategic Parts Pricing is to assure that our company produces a reasonable gross profit on all parts and materials sold thru its service department. Due to the fact that our overhead is higher (as a percentage of sales price) for low cost parts, we must mark-up these parts higher to produce the same reasonable net profit. The rational for this is simple: Lower priced parts typically do not have a manufacturer’s warranty and if they did, the part is usually not returned for credit upon failure. Low priced items also have a tendency to disappear from inventory and are more likely not to get recorded or charged to customer invoices. This policy is for the service department only.

Please use the following table to find the proper retail sales price of all repair parts and materials. Simply take the wholesale cost of the item and multiply it by the following multiplier. Then round the result to the next highest dollar.

Example: You have a gas valve that cost you $26.00 at the local supplier. To find the proper retail-selling price: Multiply $26.00 by 3.375. The answer is $87.75. Round this number to the next dollar. Your price is $88.00.

Price Range Multiplier   Price Range  Multiplier
$0.00 $0.49 6 $80.00 $89.99 2.5
$0.50 $0.99 5.75 $90.00 $99.99 2.3332
$1.00 $1.49 5.5 $100.00 $139.99 2.2499
$1.50 $1.99 5.25 $140.00 $169.99 2.1666
$2.00 $2.49 5 $170.00 $199.99 2
$2.50 $2.99 4.75 $200.00 $239.99 1.855
$3.00 $3.99 4.5 $240.00 $269.99 1.8225
$4.00 $4.99 4.375 $270.00 $299.99 1.7862
$5.00 $5.99 4.25 $300.00 $349.99 1.75
$6.00 $6.99 4.125 $350.00 $399.99 1.725
$7.00 $7.99 4 $400.00 $499.99 1.6875
$8.00 $8.99 3.75 $500.00 $749.99 1.6
$9.00 $9.99 3.625 $750.00 $999.99 1.55
$10.00 $19.99 3.5 $1,000.00 $1,499.99 1.5
$20.00 $29.99 3.375 $1,500.00 $1,999.99 1.45
$30.00 $39.99 3.25 $2,000.00 $2,999.99 1.4
$40.00 $49.99 3.125 $3,000.00 $4,999.99 1.35
$50.00 $59.99 3 $5,000.00 $9,999.99 1.3375
$60.00 $69.99 2.75 $10,000.00 $24,999.99 1.3333
$70.00 $79.99 2.625 $25,000.00 $49,999.00 1.33

Strategic Pricing Exceptions

In order to ease customer concerns with regard to the pricing of common and easily accessible parts, we will use the following reduced multipliers for the parts stated. Generally speaking: The more sophisticated the part, the higher the gross profit margin. The least sophisticated and most commonly available components generally warrant a lower gross profit margin.

Description of Component Alternative Retail Price
Pilot Safety Switch (old name: Thermocouple) $ 19.95
Hot Surface Igniter $ 39.95
Refrigerant $ ?.??
Disposable Air-Filters x 2.00
Electronic (set-back) Thermostats x 2.00
Standard Thermostats x 2.00
Oil nozzles (oil furnaces) x 2.50
x
x
x
x

© 1996-2013 by Mr. HVAC LLC and James R. Leichter

 

What is AIA Billing?

This article shows Heating & Air Conditioning (HVAC), plumbing, electrical, General Contractors, and Construction companies how to perform AIA billing. Specifically we will show construction businesses how to complete form G-702 (Contractors Application for Payment) and form G-703 (Continuation Sheet).

 

AIA billing is a standardized method of construction billing using a percentage of completed contract method (IE: Progress Billing). The purpose of AIA billing was to standardize the job related paperwork sent to architects, and others, by construction companies and contractors.

The AIA billing system was developed by the American Institute of Architects (AIA) in about 1992. Using these documents, the Contractor can apply for payment due and the Architect can certify that the payment is due.  Typically, AIA billing consists of two forms.

Important Note Regarding Copyrights:  All AIA Forms, including G-702 and G-703, are copyrighted by the American Institute of Architects and fall under copyright laws. Copyright laws prohibit software vendors from the exact duplication of the forms themselves – our software provides all the data in a similar format for printing directly onto plain paper or original AIA forms that you purchase and feed into your printer. Total Office Manager has a plain paper version that is different enough to likely avoid copyright violation but it would not be considered “official”. G701, G702, G703 and all other AIA related documents mentioned herein are service marks and or trademarks of The American Institute of Architects. Aptora makes no claims of any kind to these works.

AIA Form G-702 – Contractors Application for Payment

This is a summary of the information being submitted on the Continuation Sheet and requires the Contractor to show the status of the construction contract to date; including the Original Contract Sum, Net Change by Change Orders, Contract Sum to Date, Total Completed and Stored to Date, the amount of Retainage, if any, on Completed Work, Stored Material, and Total Retainage to date, the Total Earned Less Retainage, the Total of Previous Certificates for Payment, Current Payment Due, Balance to Finish including Retainage, and a summary of Current and Previous Change Orders – indicating if the Change Orders were an Addition to or a Deduction from the Original Contract Amount.  This document must be signed by the Contractor and notarized prior to submission.

Each Field Explained

General Info Tab

To Owner: The name and contact information of the person paying you (signs the checks). This is usually the Owner of the building.

From Contractor: Typically this is you; the Contractor that is doing the work.

Project: A short name or number given to identify the project. This may be found in the Subcontractor agreement.

Via Architect: The name and contact information of the Architect that is in charge of this job.

Application No: When you number your applications, number the first one “1” and count up from there. If you have to revise a Payment Application, do not increase the number; just add a letter designation behind the original number. For example, if you are revising Payment Application number 5, make it 5-R1 to reflect that it is a first revision of number 5.

Period To: The As of Date. This is the last day of the period for which you are billing.

Contract Date: The date of your original Subcontract Agreement.

Project #: The Subcontract numbers from Subcontract Agreement (example: “4279-30”)

Distribution To: These selections indicate who the payment submission will be copied to (who else will receive a copy).

Contract For: This field is not always found on the official AIA G702 form. This is a brief description of the scope of work.

Summary of Work

Line 1, Original Contract Sum: The price the General Contractor (GC) agreed to pay you for the scope of work you agreed to perform. This includes all accepted alternates. This number should NEVER change from your first Payment Application to your last.

Line 2, Net Change by Change Orders: The sum of all of the Change Orders that have been priced and formally approved by the General Contractor.

Line 3, Contract Sum to Date: Add the numbers on Lines 1 and 2. This is your official contract sum as of the date of this Payment Application.

Line 4, Total Completed and Stored to Date: This number comes from the left side of Column G on G703. The box is the fourth from the left, bottom row.

Line 5, Retainage (three lines): Retention (aka: hold-back) is an amount of money held back for a certain period of time. The amount is usually a percentage of the total. The rate is usually 10%. This money sits in reserve to protect the buyer. Your contract should set the terms of retention including the percentage and when the hold-back will be paid. If it doesn’t, you should insist that no retention be withheld. If the General Contractor failed to put retention in your contract, then do not allow him to use it. If you happen to be providing a Performance Bond, retention is not justified. The bond serves the same purpose as the retention.

Line 5a, _% of Completed Work: Typically it is 10%. Your contract may allow you to reduce the retention to 5% near substantial completion.

In the blank next to the dollar sign, you need to write down the dollar value of retention that applies to your completed work. To arrive at that number, go to the G703 form and add together the values from the bottoms of Columns D and E. Multiple by 0.1 if the retention is 10% or by 0.05 if the retention is 5%.

Line 5b, _% of Stored Materials: Repeat the process used for Line 5a except use the value from the bottom of Column F on form G703. Usually, the retention for completed work and stored materials is the same. Write down whichever rate is contracted next to Box 5b. In the blank next to the dollar sign, write down the retention for your stored materials.

Line 5, Total Retainage: Add together the totals from Lines 5a and 5b. This value should match the total of Column I of your G703.

Line 6, Total Earned Less Retainage: What you’ve earned, as far as approved Change Orders are concerned, is on Line 4. What the client is allowed to retain is on Line 5. Subtract the Total Retainage from your earned revenue and enter the difference on Line 6.

Line 7, Less Previous Certificates for Payment: This is line 6 from your last Payment Application (the last one you sent). Confusion is caused by General Contractors and owners, who take so long to pay up, that you are submitting your next Payment Application before the previous one gets paid.

Many people write down payments received to date on Line 7 and ignore pay requests being processed. Don’t do that! This Payment Application doesn’t care whether you’ve been paid. It only cares whether you’ve earned additional payment(s).

Go back to your immediately preceding Payment Application and write down the value from Line 6 Total Earned Less Retainage on that application. Remember, only the very last Payment Application is considered.

Line 8, Current Payment Due: Take your Line 7 value and subtract it from your Line 6 value. Write down the difference on Line 8.

This represents the value you should be paid for worked earned during this pay period and any change in retainage during the pay period.

Line 9, Balance to Finish Including Retainage: Take the contract sum to date from Line 3 and subtract the Total Earned Less Retainage from Line 6. This tells the General Contractor that he is contracted to pay you an additional amount after paying this application.

This is another confusing line because it acts as if all Change Orders have been formally processed and that all previous Payment Applications have been paid in full.

Frequently, clients and General Contractors only pay part of your application. The AIA form never reflects partial payment of an application. It wasn’t designed to. Keep track of what’s been paid vs. what’s been earned and invoiced (applied for).

The table at the bottom of page one is fairly straight forward. You will need to separate the Change Orders that add money to your contract from those that subtract money from your contract. The Net Changes by Change Order should be exactly equal to the value you entered on Line 2.

 

AIA Form G-703® Continuation Sheet

This form is sometimes referred to as Page 2 of the Application and Certificate for Payment (G702 form). It breaks down the contract sum into phases or segments of the work in accordance to a Schedule of Values required by the General Conditions of the contract.  This form serves as both the Contractor’s application for current payment due and the Architect’s certification that payment is due to the Contractor.  Its use can expedite payment and reduce the possibility of errors.

If the application is properly completed and acceptable to the Architect, the Architect’s signature certifies to the Owner that a payment in the amount indicated is due to the Contractor. This form allows the Architect to certify an amount different than the amount applied for, with any necessary explanations provided by the Architect.

In looking at our plain paper version of the AIA G-703; Continuation Sheet, you can see that Columns A, B, and C, should be completed by identifying the various portions of the Project. Any Scheduled Values should be consistent with the Schedule of Values submitted to the Architect at the beginning of the project.  This breakdown should be used consistently throughout the project, using multiple pages when necessary.

Each Field Explained

Column A: The line numbers could match the specifications section number in your specifications sheet. Otherwise, you may wish to number each line item as 10, 20, 30, etc. This field is usually never a part number.

Column B: The Description of Work field is a brief description of the phase or portion of work. Examples might include Earth Work, Pavers, Brick Work, or etc. If your scope of work is large, you may wish to match this up to major activities from your Estimate. Note: Change Orders are usually added as separate line items as they are approved.

Column C: The Scheduled Value field is the total amount of money that you were scheduled to receive for this phase of work. For example, your contract might specify that you will receive $100,000 for Pouring and Finishing First Floor Slab.

Column D: The Total of Work Completed from the Previous Applications amounts in Column D & E. This is the total dollar amount you requested for this line item through your last Payment Application. That includes materials that you previously listed as Stored Materials but have now put in place (IE: Installed). Column D does not include work completed for this period nor does it include newly stored material.

Column E: The value of construction work completed at the time of the current application.

Column F: The value of Materials Presently Stored on the Job Site for which you are seeking payment. This is typically refers to the total value of any materials that are currently stored but not installed. Usually, to get paid for stored materials they have to be on site or in a bonded, secure storage facility.

Column G: The Total of the amounts shown in Columns D, E, & F.

Percentage Complete: This is calculated by dividing Column G by Column C.

Column H: This is the difference between Column C and Column G.

Column I: Normally used only for contracts where Variable Retainage Rates are permitted on a line-item basis.  It does not need to be completed for contracts that have a consistent rate of retainage held over the entire contract.

Note: Change Orders are listed separately, either on their own Continuation Sheet or at the end of the original Schedule of Values.


AIA Forms and Documents

There are a lot of AIA related forms; not just the two that we currently provide in Total Office Manager. While the G702 and G703 are very popular, there are other forms that we will need to support at some point. Here is a list of the other official AIA forms.

G701

Change Order AIA Document. It may be used as written documentation of changes in the work, contract sum or contract time that are mutually agreed to by the Owner and Contractor. The G701 provides space for a complete description of the change and for the signatures of the Owner, Architect and Contractor.

G702

Application and Certification for Payment. Application and Certificate for Payment. A form with which the Contractor can apply for payment and the Architect can certify payment is due. It requires the Contractor to show the status of the contract sum to date, including the total dollar amount of the work completed and stored to date, the amount of retainage (if any), the total of previous payments, a summary of change orders and the amount of current payment requested.

G703

Continuation sheet from G702. The G702 breaks the contract sum into portions of the work in accordance with a schedule of values required by the general conditions. It serves as both the Contractor’s application and the Architect’s certification, and its use can expedite payment and reduce the possibility of error.

B151

Abbreviated Standard Form Of Agreement Between Owner & Architect

B511

Guide for amendments to AIA Owner-Architect agreements

A101

A101-STD Form of Agreement Between Owner & Contractor – (Stipulated Sum)

A105

Standard form of agreement between Owner & Contractor for a small project & general conditions of the contract for construction of a small project – with instructions

A205

General Conditions of the Contract for Construction of a Small Project. It is used to allocate proper legal responsibilities among the parties, while providing both a common ground and a means of coordination within the Small Projects family.

A107

Abbreviated Owner-Contractor Agreement Form For Construction Projects of Limited Scope-Stipulated Sum

A121

Construction Manager

A131

Standard form of agreement between Owner & Construction Manager where the Construction Manager is also the constructor, where the basis of payment is cost of work plus a fee, and there is no guarantee of cost.

A141

Agreement between Owner and Design-Builder

A142

Agreement between Design-Builder and Contractor (Replaces A491)

A191

Replaced by A141

A201

General Conditions of the Contract for Construction

A251

General conditions of the contract for furniture, furnishings and equipment. Intended for use with A151.

A305

Contractors Qualification Statement 86

A310

Bid Bond (1970)

A312

Performance and Payment Bond

A401

Agreement between Contractor and Subcontractor

A501

Recommended Guide for Bidding Procedures and Contract Awards

A511

Guide for Supplementary Conditions (for use with A201)

Where to Buy Forms

AIA forms and instructions may be purchased from your local AIA chapter office. Various companies sell them such as http://www.constructionbook.com/aia-documents/


AIA G702 and AIA G703 Preparation Training Exercise

Please follow this example to learn how to fill out an actual G702 and G703 form. You will need a G702 and G703 form to do this exercise.

AIA Form G702

Most Contractors tell us that AIA Payment Applications are frustrating and difficult to fill out. To fill one out correctly, you must ignore change orders that have been approved, but not processed. You must ignore receivables still outstanding from previous applications. Basically, you have to forget about basic accounting principles.

Construction Payment Applications are an important component of cash management. When you mess up your Payment Application, three things might happen, none of which put you in good standing with your General Contractor, and two of which damage your cash position:

  1. Your Project Manager cuts your request to a value he can understand. You receive a partial payment.
  2. Your Project Manager informs you that if you don’t get a corrected application in by the deadline, you will have to wait another 30 days for payment. You may not receive any payment.
  3. Your Project Manager makes the corrections himself and may hold it against you in the future when you need a favor or are looking for work. Like the rest of us, Construction Project Managers like working with people who don’t create problems.

You really have no choice other than learning how to fill out the AIA forms correctly.

We are going to show you how to fill one out correctly. In Part 1, we attack the first page (AIA form G702) and in Part 2 we will work on the second page (AIA form G703).

Before we get started, grab a copy of the form.

Line 1: Original Contract Sum. The price the General Contractor agreed to pay you for the scope of work you agreed to perform. This includes all accepted alternates.

Pull out your contract. Look at it. This number should NEVER change from your first Payment Application to your last.

Assume your contract was for $105,000.

Line 2: Net Change by Change Orders. Here it is. The line that creates much frustration.

Add up all of the Change Orders that have been priced and FORMALLY approved by the General Contractor. If the Project Manager is sitting on your Change Order paper work, call him at least a week before your Payment Application is due and URGE HIM to complete the paper work. Being the squeaky wheel is often your only recourse.

Assume the General Contractor has processed and signed $10,000 in change orders.

Line 3: Contract Sum to Date. This should be easy. Add the numbers on lines 1 and 2. This is your OFFICIAL contract sum at the date of this Payment Application.

Your contract sum to date is $115,000 ($105,000 plus $10,000)

Line 4: Total Completed and Stored to Date. This value comes from the left side of Column G on form G703. The box is the fourth from the left, bottom row. For now assume that you have completed $500,000 of work and have stored $50,000 of materials in approved storage sites.

Your Line 4 total would be $25,000.

Line 5: Retainage (three lines). Your contract should set the terms of retention. If it doesn’t, demand that no retention be withheld! If the General Contractor failed to put retention in your contract, do not allow him to use it.

On a side note, if you happen to be providing a Performance Bond, retention is not justified. The bond serves the same purpose as the retention.

Line 5a: % of Completed Work. In the blank next to Box a, write down the current retention percentage. Typically, it is 10%. Your contract may allow you to reduce the retention to 5% near substantial completion.

In the blank next to the dollar sign, you need to write down the dollar value of retention that applies to your completed work. To arrive at that number, turn to form G703 and add together the values from the bottoms of Columns D and E. Multiple by 0.1 if the retention is 10% or by 0.05 if the retention is 5%.

Assuming 10% retention and $25,000 of completed work, write down $2,500.

Line 5b: % of Stored Materials. Repeat the process used for Line 5a except use the value from the bottom of Column F on form G703. Usually, the retention for completed work and stored materials is the same. Write down whichever rate is contracted next to Box b. In the blank next to the dollar sign, write down the retention for your stored materials.

Assuming 10% retention and $0.00 for Materials Presently Stored, write down $0.00.

Line 5: Total Retainage. Add together the totals from Lines 5a and 5b. This value should match your total of Column I on form G703. For our example, the figure would be $2,500.

Line 6: Total Earned Less Retainage. What you’ve earned, as far as approved Change Orders are concerned, can be found on Line 4. What the client is allowed to retain is on Line 5. Subtract the Total Retainage ($2,500) from your earned revenue ($25,000) and enter the difference ($22,500) on Line 6.

Line 7: Less Previous Certificates for Payment. Remember that it does not matter if you have been paid for your previous applications.

Go back to your immediately preceding Payment Application (only the last one you sent) and write down the value from Line 6: Total Earned Less Retainage on that application. For the sake of our example, assume that the amount you have submitted to date is $20,000.

Line 8: Current Payment Due. Take your Line 7 value ($18,000) and subtract it from your line 6 value ($22,500). Write down the difference on Line 8 $4,500).

This represents the value you should be paid for work earned during this pay period AND any change in retainage during the pay period.

Line 9: Balance to Finish Including Retainage. Take the contract sum to date from Line 3 ($105,000) and subtract the Total Earned Less Retainage from Line 6 ($22,500). This tells the General Contractor that he is contracted to pay you an additional $92,500 AFTER paying this application.

This is another confusing line because it acts as if all Change Orders have been formally processed and that all previous Payment Applications have been paid in full.

Frequently, clients and General Contractors only pay part of your application. The AIA form never reflects partial payment of an application. It wasn’t designed to. Your company must keep track of what’s been paid vs. what’s been earned and invoiced (applied for).

The table at the bottom of page one is fairly straight forward. You will need to separate the Change Orders that add money to your contract from those that subtract money from your contract. The Net Changes by Change Order should be exactly equal to the value you entered on Line 2.

Form G703

The purpose of G703 is to allow General Contractors to keep a close eye on your billing. As that is their purpose, they will probably ask you to break your payment request into several line items. Sometimes this form is simply referred to as “AIA Payment Application Form G703”.

If they don’t detailed accounting of payments, use as few breakouts as possible. This is your one opportunity to control your billing. If they request a more detailed breakout, give it to them.

Column A – Item No.: Number your line items however you wish. Most Contractors start with “1” and go from there. Some use the specification section or drawing number that the work applies to. Please number your Column A 1 through 3 (you will have three lines).

Column B – Description of Work: Describe the line item’s type of work or anything else that makes sense to you.

Assume your first line item is for “Mobilization”. Your second line item is for “Stump Removal”. Your third line is for “Earth Work”. The rest of our example will focus on the Earth Work in line 3. You now have three lines numbered 1 through 3.

Column C – Scheduled Value: Assign a dollar value to each line. The grand total of all lines must equal your current contract sum that shows up on line 3 of Page 1. Double check this before submitting the Payment Application.

Assume you have scheduled $5,000 for Mobilization (on line 1), $5,000 for Stump Removal (on line 2), and $15,000 for Earth Work (on line 3). Enter that in Column C.

Column D – Work Completed from Previous Applications: This is money for work you have previously billed. Remember that it doesn’t matter if you have been paid for this work. It only matters what has been billed (applied for).

Assume that on your last application, you applied for (billed) $5,000 for Mobilization (Line 1), $5,000 for Stump Removal (Line 2), and $10,000 for Earth Work (Line 3). Enter these dollar amounts in Column D.

Column E – Work Completed This Period: The dollar amount of new work completed this period. Do not include materials that you installed but have already been paid for under Stored Materials. That figure goes in Column D. All labor, equipment, and mark-up for the placement of these stored materials should be included as Work Completed This Period.

Let’s assume that we are finished with Mobilization and Stump Removal. Lines 1 and 2 in Column E will be zero. Assume you have completed $5,000 of Earth Work this period. Enter $5,000 on line 3, Column E.

Column F – Materials Presently Stored: Recall that this is the total value of materials currently stored on the job site but not installed.

Assume you have stored $0 worth of items related to Mobilization (on line 1), $0 for Stump Removal (on line 2), and $0 for Earth Work (on line 3). Enter zeros in Column F.

Column G – Total Completed and Stored to Date. Add together Columns D, E, and F. This value should be the total work and materials to date. Enter that in Column G.

You should have $5,000 for Mobilization (on line 1), $5,000 for Stump Removal (on line 2), and $15,000 for Earth Work (on line 3).

Column G – % (of scheduled value): This column is commonly referred to as Percent Complete. Divide your Total Completed and Stored to Date by the Scheduled value.

You should have 100% for all three lines.

Column H – Balance to Finish: Subtract the Total Completed and Stored to Date from the Scheduled Value.

You should have zero for all three lines.

Column I – Retainage (held): Remember that this column is normally used only for contracts where Variable Retainage Rates are permitted on a line-item basis.  If you look back at G702, we are using a consistent rate of retainage; which is 10%.

Leave Column I blank for all three lines.

To finish filling out your form, total up each column and enter the value at the bottom of the column on the Grand Total line.

Check you work against the example at the top of the page. Do you match the example?

 

Conclusion
AIA Billing may be a requirement for any heating & air conditioning (HVAC), plumbing, electrical, general contractors, and construction company. Knowing how to do AIA billing is an essential part of managing a service or construction company. Accounting software and job costing software often automates the process of AIA billing. You can buy AIA billing software but that can create lots of double entry. It’s best to use small business accounting scheduling software that also includes AIA billing.

You may also wish to consider full enterprise level accounting software that includes AIA billing such as Total Office Manager from Aptora Corp.