Your complete guide to construction work in progress (WIP)

It’s Friday afternoon. You’re behind on the drywall, the plumber is asking for an advance, and the client just emailed to ask why the last invoice was higher than expected.

You pull out your notes, cross-check a few spreadsheets, and hope the numbers add up.

But they don’t.

Sound familiar?

You’re not alone. 43.2% of construction projects run into payment issues and inaccurate estimates. They often end up underbilling or overbilling project milestones, which can lead to cash flow issues later.

The biggest reason? Most crews don’t have a clear, day-to-day handle on where the money’s going. 

That’s what a WIP report is built for. It shows you, at every stage, if a job’s earning what it should, or quietly draining your margins.

In this guide, we’ll break down 

• Exactly what is WIP, and why should you care
  
  
• How to calculate WIP in construction
  
  
• Steps to implement WIP properly
  
  
• What can you do with the WIP data 
  
  

First, let’s break down what WIP actually means on a live project.

What is Work in Progress (WIP) in construction, and why does it matter

Work in Progress (WIP) is the value of work that’s been completed on a job but hasn’t yet been billed to the client. It helps you track earned revenue in real time, regardless of whether an invoice has been sent. 

Let’s go through an example to understand it better: 

Imagine you’ve secured a building project contract worth €1,000,000. Your own budget estimate to complete the project is €800,000. 

Now, you have finished work worth €300,000 to date. To put that in percentage, you've completed (300,000 / 800,000) x 100 = 37.5% of the work.

Since the total contract value is €1,000,000, that means your earned revenue to date is (37.5% x €1,000,000) = €375,000. 

A WIP report breaks down all these numbers, plus whether you're underbilling or overbilling clients for the work done to date. 

But you might ask, “Why do I need to maintain WIP reports, instead of just accounting for the final invoice?” 

Because:

• WIP tells your financial health at every step of the way, so you can adjust in time before projects go off track
  
  
• Your field crews and subcontractors depend on timely payments to keep the project moving
  
  
• Banks and lenders look at WIP data to gauge whether your business is profitable or risky
   
• It keeps you compliant with local building, security, and employment laws
  
  

Construction WIP reports show up in your balance sheet as current asset (when underbilled) and current liability (when overbilled). 

But there’s a catch with the billing methods. We'll explain them down below, so read on.

Why is it a challenge to follow construction WIP?

What if I tell you only 11.4% of builders know how to calculate WIP? 

That number isn’t surprising when you dig into why. WIP reporting originated in manufacturing, where you have to track supply, labor, and production costs to keep the balance sheet healthy. 

And while the bookkeeping logic works just as well in construction, it doesn't feel like a natural jobsite process for builders.

Another thing is that WIP reports are generally handled by accountants. Whether it's IFRS, or market-specific standards such as AAS (Australia), GAAP (U.S.A), or ASPE (Canada), it's the accountants who use WIP for reporting. 

Contractors might feel they don’t need to get into WIP reports, and that's how they leave profits on the table. 

If you embrace WIP and use the data to guide business decisions, you'll run more profitable projects and outperform peers still flying blind. Don't worry, we're gonna help you along the way.

Want to calculate your construction WIP? Here are the things you include 

Many WIP reports fail to create a real impact because they’re not set up correctly. 

What you need are the right inputs—accurate, up-to-date figures that reflect both your project performance and financial standing.

Here’s the essential data to collect:

• Total contract value: This is the full price you agreed with the client. Include change orders or approved variations if they’ve been finalized. It’s your revenue ceiling.
  
  
• Total estimated costs: This is how much you expect the project to cost you from start to finish. It includes labor, materials, equipment, subcontractors, and overheads.
  
  
• Cost incurred to date: Your actual expenses so far. This includes invoices from subcontractors, material receipts, equipment hire, and labor costs.
  
  
• Total billings to date: How much have you invoiced the client so far? Only include what’s been officially billed, not what you plan to bill next month.
  
  

The last number brings us to underbilling and overbilling. If you’ve billed more than the work done to date, you have overbilled. Similarly, if you’ve billed less than the work done to date, you have underbilled.  

Based on this, it makes sense to overbill, right? 

Wrong. 

Here's a comparison table to clear the air:

As you can see, no one method is better than the other. Both have their risks, and if you don’t track job costs and billing reports, you'll be up for nasty surprises. 

The best way to solve this? Use a construction mobile app that lets field teams add and track site photos, schedules, punch lists,  and work progress from their phones. 

Buildbite is built for field crews to get visibility into work without adding an extra layer of tech. If you have a mobile phone, you can start using Buildbite to get the data.

Next, I’ll show you the exact formula to use for construction WIP and how to interpret the result.

How to calculate your WIP in construction: The 3 main methods for construction 

These formulas are simple and work in different use cases. Based on your project type, you can pick the one that suits you best.

Method 1: The Percentage of Completion (POC) method (most common)

Let’s start with the most common approach used by contractors, as it’s International Financial Reporting Standards (IFRS) recognised. 

It’s also recognized under:

• US GAAP (ASC 606) in the United States
  
  
• AASB/AAS (AASB 15) in Australia
   
• IFRS (IFRS 15) and ASPE (Section 3400) in Canada
  
  
• UK GAAP (FRS 102) in the United Kingdom
  
  

Here’s how it works, step by step:

Step 1: Calculate the percentage of completion. This tells you how far along you are based on cost. I’ll use the example used above.

Formula:
Percentage of Completion = (Costs Incurred to Date / Total Estimated Costs)

Example:
If you've spent €300,000 so far and your estimated cost is €800,000,

→ Completion = 300,000 ÷ 800,000 = 37.5%

Step 2: Calculate earned revenue by applying that percentage to your total contract value.

Formula:
Earned Revenue = Percentage of Completion × Total Contract Value

Example:
37.5% of a €1,000,000 contract = €375,000 earned revenue

Step 3: Calculate over/under billing by comparing what you’ve actually billed to what you’ve earned.

Formula:
Over/Under Billing = Total Billings to Date – Earned Revenue

• If the result is positive (you billed €400,000 but only earned €375,000), you're overbilled → shows as a liability
  
  
• If the result is negative (you billed €300,000 but earned €375,000), you're underbilled → shows as an asset
  
  

This is the best way to make sure you're following the time estimates and the budget.

Method 2: The completed contract method (for shorter, unpredictable projects)

If your projects are short, messy, or the kind where things constantly change,  the completed contract method is the one for you.

Maybe the job’s only 2–3 months long, or maybe the client keeps tweaking the scope. In cases like these, trying to calculate progress mid-project can be more trouble than it’s worth.

When to use this method:

• Smaller or fast-turnaround jobs
  
  
• Projects with unpredictable costs
  
  
• When you’d rather not report income until the job’s 100% done, deferring tax implications
  
  

How it works:

It’s pretty straightforward: You don’t recognise any revenue or profit until the entire job is done.

While the work’s ongoing, you still track your costs, but instead of showing up as expenses, they sit in a WIP asset account on your balance sheet.

Once the project wraps up:

• You book the full contract value as revenue
  
  
• Move the tracked costs from WIP into expenses
  
  
• Profit = Revenue – Costs, all in one hit
  
  

Quick example:

Say you’ve got a €400,000 shop fit-out expected to finish in 6 months.

• With the POC method, you’d report revenue monthly. For example, €150,000 by month two.
  
  
• With the CCM method, you report zero until the day the job’s done. Then €400,000 revenue, minus costs, all at once.

If you’re running longer projects or need better forecasting, it’s not the one. But for quick-turn or unpredictable jobs, it gets the job done without the fuss.

Method 3: The units completed method (for repetitive work)

If you're building the same thing over and over, like apartment blocks or sections of a road, this method might be your best friend.

The units completed method (UCM) is perfect when your project is made up of clearly countable, repeatable parts. Instead of tracking costs or timelines, you track how many units you’ve finished.

When to use this method:

• Housing developments with identical units
  
  
• Multi-floor builds where each level follows the same design
  
  
• Civil projects like roads, pipelines, or towers built in segments
  
  

It gives you a simple, progress-based way to calculate earned revenue without getting tangled in cost tracking.

How it works:

You're measuring progress by how many units you’ve delivered.

Formula:
Percentage of Completion = (Units Completed / Total Units in Contract)

Then, just like in the POC method:

Earned Revenue = Percentage of Completion x Total Contract Value of Completion

Quick example:

Say you’ve got a contract to build 10 identical villas for €2,000,000 total.

• You’ve completed 6 villas so far.
  
  
• That’s 6 ÷ 10 = 60% complete
  
  
• Earned revenue = 60% of €2,000,000 = €1,200,000
  
  

From here, compare it to your billings to figure out if you’re overbilled or underbilled, same as in Method 1.

This method works best when every unit is more or less the same. If your builds vary in complexity, size, or finish, stick to POC instead.

Case Study: How Trähus calculates WIP using Buildbite

Trähus, a Finnish construction company focused on sustainable renovations, used to struggle with the usual suspects: tight profits, client complaints, and costly rework. Things started turning around when they brought in Buildbite, a mobile-first construction app built for field teams, not accountants. 

Buildbite helped them tighten up communication, track task progress in real-time, and finally get a handle on their WIP reporting.

Since switching:

• Internal messages dropped by 30%
  
  
• Job managers saved 2.5 hours per day
  
  
• Billing rate hit 95%
  
  

Project snapshot

How Trähus used Buildbite to calculate WIP (POC method)

Step 1: Enter job cost data

Using Buildbite, the project manager pulled live numbers from team timesheets and supplier invoices. This was done in seconds because job-related documents are organized in a unified space within Buildbite.

Step 2: Calculate % complete

Formula: €100,000 ÷ €400,000 = 25% complete

Step 3: Calculate earned revenue

Formula: 25% × €500,000 = €125,000

Step 4: Gross profit to date

€125,000 (earned) – €100,000 (costs) = €25,000 profit so far

Step 5: Over/under billing check

€150,000 billed – €125,000 earned = €25,000 overbilled → Flagged as a liability in Buildbite’s WIP dashboard

Why it mattered

Without Buildbite, this would’ve looked like a win. They were ahead on billing and had extra cash in the bank. But the WIP report told the real story: they were behind on the actual work.

Thanks to Buildbite’s real-time field data alerts, the project manager could course-correct fast by shifting resources and updating timelines. They prevented costly rework by keeping clients in the loop with change requests.

Buildbite didn’t just help Trähus track WIP; it helped them communicate throughout the project and stay profitable.

What to do after you calculate WIP: From numbers to action 

So you’ve crunched the numbers. You’ve got your earned revenue, your billing status, and your percentage complete. Now what?

Now you can make high-level business decisions to stay ahead of the curve.

Review and update your WIP monthly

Don’t wait for year-end. WIP reports should be reviewed every month alongside job costing. Use tools like Buildbite to auto-sync job data, including costs, time, and invoices, and flag changes early. This gives you an up-to-date picture of how you manage money while the job is going on.

Next step: Set a recurring monthly task for your PM or bookkeeper to update the WIP sheet using actuals from the field. 

Analyze for profitability 

Now that you have actual costs, test your original assumptions.

• Are you earning the margin you expected?
  
  
• Is your cost-to-complete still realistic, or are you chewing through the budget faster than planned?
  
  
• Have unapproved changes or delays crept in?
  
  

Next step: Update your cost forecast. If costs are rising faster than progress, it’s time to revisit your estimate-to-complete plan accordingly.

Manage cash flow

Look at your over/under billing line.

• Underbilled? You’re behind on invoicing. Get those claims out.
  
  
• Overbilled? You’ve got cash in the bank, but make sure it covers the work still to come.
  
  

Next step: Balance billing with earned revenue and review collections to avoid funding work out of your pocket.

Communicate with stakeholders 

WIP isn’t just an internal document. It helps you proactively reduce client disputes and show financial reports to banks.

Next step: Share key WIP metrics in client updates and internal reviews. Make it a regular part of asset allocation and forecasting. 

Expedite WIP reporting with Buildbite

If you've made it this far, you already know construction WIP is not just a dashboard for accountants—it's fundamental to your project management. 

Review the cost and revenue columns frequently to be aware of whether you're underbilling or overbilling and take action to mitigate the risks. 

You can set up your WIP report by feeding it the data Buildbite collects. Since everything is done on phones, field crews can tag more datapoints, and you can even bring in clients to make the field crew feel confident about their work. 

Start your journey to project profitability. Try Buildbite today. 

FAQs on how to calculate WIP in construction

What is the difference between the Percentage of Completion and Completed Contract methods?

The Percentage of Completion (POC) method recognizes revenue based on job progress, ideal for long-term or phased projects. The Completed Contract method only recognizes revenue when the project is fully complete, best for short or unpredictable jobs.

How does WIP affect my company's balance sheet?

WIP helps reflect job performance and cash flow position accurately.

• Underbilled WIP shows up as an asset (you’ve done more work than you’ve billed for)
• Overbilled WIP appears as a liability (you’ve billed ahead of actual progress)
  
  

How often should I calculate WIP for my projects?

You should calculate WIP monthly, not just at year-end. Monthly updates help you manage profit margins, catch delays early, and make smarter billing decisions.

How is WIP calculated?

To calculate WIP:

1. Percentage Complete = Costs Incurred ÷ Total Estimated Costs
2. Earned Revenue = % Complete × Contract Value
3. Over/Under Billing = Total Billed – Earned Revenue

How do you calculate earned revenue in construction?

Use the cost-based POC method:
Earned Revenue = (Costs Incurred ÷ Total Estimated Costs) × Contract Value

How to calculate work done in construction?

Work done is measured as percentage complete:

• Cost method: % = Costs Incurred ÷ Total Estimated Cost
  
  
• Units method: % = Units Completed ÷ Total Units in Contract
  
  

This gives you a reliable progress benchmark for earned revenue and billing.