What a 15% Overrun Does to a Software Project Estimate
By Kurt Schmidt
|August 29, 2026
Every software estimate starts with the hours you expect the work to take. Your costs come from the hours the team ends up using. When the work runs long, the way you charge decides how much of that extra cost stays with you.
With a fixed price, the client pays the same amount while your labor cost rises. Time and materials can bring in more money, but only when the contract allows it and the client approves the extra time. A job that looked profitable can end below the margin you need.
I check for that before the price goes into a proposal. First I add the extra hours the team expects and see whether the margin stays above my minimum. Then I test the part of the estimate I am least sure about.
Take a $165,000 fixed-price project with 820 planned hours and a 45.9% margin. If the work takes 15% longer, the hours rise to 943 and the margin falls to 39.6%. The profit margin drops by 6.3 percentage points without any other cost changing.
With a 40% minimum, the estimate falls short by 0.4 points. I would change the $165,000 price or the work plan before sending it.
Compare both ways of charging
That is why I built the free Software Project Estimator. It puts fixed price and time and materials side by side, then shows how the profit changes when the team needs more time.
For the first check, I add the same 15% to every role while all other costs stay the same. That shows what happens when the whole team needs more time. If one role is more likely to run long, I change those hours next.
In the table, delivery cost means what you pay the team, plus the other costs and contingency entered for the project.
| How you charge | If the plan holds | With 15% more hours |
|---|---|---|
| Fixed price | $165,000 revenue, $89,300 delivery cost, 45.9% margin | $165,000 revenue, $99,695 delivery cost, 39.6% margin |
| Time and materials, billed by the hour | $138,000 revenue, $89,300 delivery cost, 35.3% margin | $153,525 revenue with 75% of the extra hours billed, $99,695 delivery cost, 35.1% margin |
With fixed price, the client still pays $165,000. The extra $10,395 in delivery cost comes out of the project's profit.
When billing by the hour, charging the client for 75% of the extra time brings in another $15,525. The margin stays near the first estimate, but the business still pays for the hours that cannot be billed.
That 75% works only if the contract allows the charge and the client approves it. Any limit on extra charges also needs enough room. I would use a lower share if either condition looked doubtful.
Check the part most likely to change
A 15% check is a first look. One role may need more hours, a vendor bill may change, or the client may pay for less extra time than you expect.
I change one of those at a time and check the margin again. The first likely change that puts the margin below my minimum is the issue to solve before the proposal leaves. It may change the price or the work plan.
Keep your costs and margin inside the business. Give the client the price and a clear description of the work. Explain how extra work gets approved.
Learn from the finished project
After delivery, I open the original estimate and replace one planned item at a time with what happened. The change that moves the margin most shows what needs a better estimate next time.
Price and scope still belong to the owner.
About Kurt Schmidt
Kurt Schmidt is an agency growth consultant and coach. He works with founder-led agencies on positioning, pricing, and pipeline, and stays through the rollout instead of handing over a deck. Before consulting, Kurt was president and partner at Foundry, a Minneapolis digital agency that made the Inc. 5000 twice, and he helped scale The Nerdery from 50 people to more than 500. His books include The Attraction Agency, and he hosts The Road Map.
More about Kurt →
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