The self-cost method vs. the contribution method – an in-depth guide to choosing the right calculation method
Created December 2025, Reading time: approx. 2-3 minutes
Costing is one of the most important processes in any construction or civil engineering company. Correct costing provides a better basis for decision-making, ensures profitability and reduces risk. Incorrect costing, on the other hand, can lead to underpricing, cost overruns and weak finances. The first choice a coster must make is which method to use: the contribution method or the cost method. Although both can provide a correct result, they require different levels of detail and provide different levels of control. In this support article, you will get a thorough introduction to how the methods work, their strengths and weaknesses, and in which situations each method is appropriate.
What the contribution method actually is
The contribution method – or contribution margin method – focuses only on direct costs. This means that all fixed and indirect costs are “collected” in the contribution margin. This makes the method quick and easy, but also less accurate. For example, as a cost accountant, you must assess yourself how large the contribution margin should be to cover overhead and profit. Many companies use standardized markups, but in practice indirect costs vary from project to project. Lack of understanding of this can lead to margin pressure or losses.
Typical applications
Service assignments
Minor carpentry, plumbing or electrical jobs
Assignments where the customer needs a quick quote
Works with low risk or few unknown factors
Common pitfalls
Lack of consideration for cars, administration, tools and time spent off the construction site
Too low markups in competitive situations
Underestimating risk when the job is not as easy as initially thought
3. The self-catering method in practice
The cost-effectiveness method takes into account the entire cost picture before setting a price. This provides much better control, and in larger projects it is absolutely necessary. Many building owners – especially public ones – expect the contractor to be able to document all calculation assumptions. Therefore, the cost-effectiveness method is not only a recommendation, but often a requirement.
Typical costs included
Direct costs (materials, hours, UE)
Indirect costs (administration, project management, computer systems, tools, car, rig and operation)
Risk adjustment
Profit
The cost-per-project method is time-consuming, but provides a much more robust basis for understanding a project's finances. It is especially important in projects with many subcontractors and complex interfaces.
4. Comparison of the methods
| Criterion | The contribution method | The self-catering method |
|---|---|---|
| Accuracy | Medium | High |
| Risk control | Low | High |
| Time usage | Low | High |
| Documentation requirements | Low | Loud |
| Recommended in larger projects | No | Yes |
| Suitable for small service jobs | Yes | Partial |
5. When should you use which method?
You should use the contribution method when:
The mission is small and clear.
price must be given quickly
risk is low and the quantities are easy to calculate
you know the customer well and have experience with similar jobs
You should use the self-cost method when:
the project has uncertainty or many subjects
it is a form of contract with reporting or documentation requirements
offers must be submitted in public tender
the assignment requires detailed project management and coordination
6. Consequences of the wrong method
Using the contribution method on a large, complex project is a common reason why contractors lose money. Conversely, using the cost method on simple jobs can make the company less efficient and increase time unnecessarily. The key is to choose a method based on risk – not habit.
Both methods have their place. The contribution method is perfect for small jobs, but too weak for larger projects. The cost-effective method provides control, security and professionalism – and is therefore the industry standard in projects where documentation, risk and finances play a greater role.
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