Managing materials and labor is only one part of running a profitable business. To stay in control of your project costs, you need to know exactly where every dollar goes. Yet with research revealing that more than 90% of construction projects go over budget, over schedule, or both, keeping track of expenses is clearly a challenge for most builders.
While you may have visibility into direct construction costs, such as supplies and subcontractors, the problem often lies in the less obvious expenses. Costs like design fees, permits, and insurance can quietly add up and distort profit margins.
Builders who understand and plan for these “soft costs” gain a clearer picture of real project spend and stronger control over their budgets. In this guide, we’ll break down what soft costs are, how they differ from hard costs, and how connected construction budgeting tools make it easier to estimate and track them accurately.
Construction Hard Costs
To understand soft costs in construction, begin with their opposite: hard costs.
In construction, hard costs (sometimes called “brick and mortar costs”) refer to anything considered a direct construction cost. In other words, any expenses from the construction of a building or project that are caused by the process of construction. Hard costs include:
- Materials and supplies: all physical building materials such as timber, concrete, fixtures, fittings, and finishes
- Labor costs: wages and subcontractor fees for on-site work like framing, roofing, plumbing, and electrical
- Equipment and machinery: hire or purchase of tools, vehicles, and heavy equipment used during the build
- Site preparation and excavation: clearing, grading, drainage, and foundation work before construction begins
- Structural construction: framing, walls, roofing, windows, and doors that form the building shell
- Mechanical, electrical, and plumbing (MEP): installation of HVAC systems, wiring, and plumbing services.
- Interior and exterior finishes: painting, flooring, cabinetry, tiling, cladding, and landscaping to complete the project.
For example, a residential builder managing a new build might incur hard costs across several key areas, depending on the project’s nature:
- Excavation and slab preparation handled by an earthworks crew
- Framing, roofing, and cladding completed by carpenters and roofers
- Plumbing and electrical rough-ins installed mid-build
- Final finishes such as tiling, flooring, and cabinetry fitted in the closing stages
While there may be some initial expenses, such as purchasing materials or mobilizing contractors, the majority of hard costs are incurred during the ongoing work. This is why it’s important for construction projects to run on schedule, so labor costs remain at the estimated amount.
Now that we’ve established the various activities categorized as construction hard costs, let’s take a look at their counterpart: soft costs.
Construction Soft Costs
Soft costs refer to all the other (or additional) expenses of a construction project not directly associated with the physical construction process. Most of these costs are for non-tangible items, such as services, fees, and insurance.
Construction soft costs include engineering, permits, marketing, and project management expenses. Soft costs are incurred from the preplanning stage of a project to post-occupancy and beyond.
Examples of construction soft costs
The soft costs associated with a project will vary significantly depending on its type and scope of work. For example, a small remodel that only includes painting and flooring probably won’t incur soft costs like design fees or permits.
On the other hand, a new building with tenant spaces to lease will require builders to create and manage a budget for costs like marketing, insurance, and other development fees. These are all examples of soft costs.
Here are a few more typically found on construction projects:
Design
Design costs cover the professional services needed to plan and prepare a project before construction begins. They can include architects, designers, engineers, interior decorators, and other design consultants who help ensure the plans are both functional and compliant.
Soft costs in this category could also look like:
- Architectural and structural design fees
- Engineering assessments and certifications
- Drafting, 3D modeling, and interior design services
- Design revisions and plan approval documentation
For example, a builder planning a second-story addition hires an architect to create concept drawings, a structural engineer to confirm the existing slab can handle the added load, and a designer to refine floor layouts and finishes.
Permits and surveys
More extensive remodels and renovations often require building permits and plan reviews by the local jurisdiction. The project may also need surveys to confirm boundary lines, elevations, or zoning compliance. These soft costs help ensure the build meets legal and safety requirements before any work begins.
Permit and survey costs may include:
- Building permits and inspection fees
- Development or zoning applications
- Property boundary and topographic surveys
- Environmental and soil assessments
For example, before starting a major renovation, the builder applies for building permits and schedules a boundary survey to confirm setback distances. They also arrange for a soil test to guide foundation design.
Marketing
Marketing soft costs help promote a project or grow a builder’s reputation. These expenses might cover anything from sales signage to digital campaigns, construction CRM, and lead management — anything that helps builders attract new clients or sell completed homes more quickly.
Marketing costs may include:
- Advertising and listing expenses
- Photography, signage, and printed materials
- Social media or website promotion
- Open house or sales event costs
For example, once construction is complete, the builder invests in professional photos, branded signage, and an online listing to promote the project and attract buyers.
Rentals
Rentals on a job site can include both equipment and temporary office space. Builders might use mobile trailers or storage containers for meetings and materials, as well as hired equipment to support construction activities. These short-term costs make site operations more efficient and organized.
Rental costs may include:
- Site office or mobile trailer hire
- Secure storage containers and fencing
- Equipment rentals, such as forklifts or scissor lifts
- Portable toilets and waste removal
For example, on a multi-month residential build, the team rents a mobile site office to handle meetings and paperwork, and a Conex box to store tools and materials securely.
Financial and insurance
All construction projects require insurance and financial management to protect builders, contractors, and workers. This can include insurance coverage, bonds, and accounting services that help manage financial risk and ensure the project remains compliant and secure.
Financial and insurance costs may include:
- Builders’ risk and public liability insurance
- Workers compensation coverage
- Accounting, auditing, and bookkeeping services
- Project-related bonds and financial guarantees
For example, before a project begins, the builder arranges insurance to cover potential damage or loss during construction. They also work with an accountant to manage project finances, ensuring that all costs, including subcontractor payments and taxes, are accurately tracked.
Project management
Overall project management expenses, including digital tools and communication systems, are considered soft costs. These may include expenses for a project manager or an independent owner representative. Project management services provided by the general contractor can also be included here or may be considered part of hard costs.
Project management costs may include:
- Project manager or owner’s representative fees
- Construction management software subscriptions
- Office and communication equipment
- Travel or coordination expenses for site oversight
For example, a builder brings in an independent project manager to oversee scheduling and coordinate subcontractors. They also use construction management software to track estimates, costs, and variations for improved project outcomes.
Post-construction
Post-construction soft costs include activities that occur after practical completion. These may involve inspections, cleaning, or maintenance to finalize the project, meet warranty obligations, and support long-term client satisfaction.
Post-construction costs may include:
- Final inspections and handover documentation
- Warranty and maintenance visits
- Post-occupancy repairs or adjustments
- Cleaning and waste removal services
For example, after handover, the builder schedules a follow-up maintenance visit to inspect finishes and address minor issues like paint touch-ups or door alignment.
Security and safety
Security and safety-related soft costs protect both people and materials on-site. Builders may hire temporary staff, consultants, or security systems to reduce theft and prevent injuries; this is a proactive investment that minimizes costly disruptions and legal risks.
Security and safety costs may include:
- Temporary site security staff or guards
- Surveillance systems or lighting
- Health and safety consultants
- Safety training and compliance checks
For example, to protect valuable equipment and materials during a lengthy build, the builder hires a night guard and installs temporary lighting around the site. A safety consultant also reviews procedures to ensure compliance and prevent incidents.
Construction loan fees
Loan-related soft costs include the fees and charges associated with securing and managing project financing. These costs are part of the financial groundwork that allows construction to begin and continue smoothly.
Construction loan fees may include:
- Loan setup and commitment fees
- Bank transaction and drawdown charges
- Interest during construction
- Accounting and reconciliation costs
For example, before starting the build, the builder finalizes a construction loan to cover materials and labor. The lender charges setup and drawdown fees each time funds are released.
Legal fees
Legal soft costs cover any professional legal advice or contract work needed throughout a project. These costs help protect builders from disputes, clarify terms with clients, and ensure compliance with all contractual and regulatory obligations.
Legal fees may include:
- Contract drafting and review
- Permit or compliance consultation
- Dispute resolution and mediation
- Legal retainers or advisory services
For example, a construction lawyer reviews the homeowner contract, ensuring every clause, from progress payments to variations, is clear and enforceable. This helps to avoid costly disputes and protect the business from future risks.
They may be “hidden” but these expenses have a traceable impact on your bottom line. Understanding how to incorporate soft costs into your budget effectively — and streamlining this process using digital cost tracking tools — is crucial for maintaining control over your cash flow.
The A to Z’s of Including Soft Costs in Your Project Budget
When developing an estimate for a construction project, it’s crucial to include both hard costs and soft costs. It’s the only way to truly estimate the cost of a project, which in turn impacts your profit later down the track.
Studies have shown that construction projects experience an average cost overrun of 28%, often because soft costs are underestimated or left out entirely. Seeing as these indirect expenses can account for 25–50% of a project’s total budget, overlooking them can quickly erode your margins.
Identifying and quantifying soft costs early gives you a clearer understanding of your actual project costs and a more accurate measure of your final return on investment.
Not sure which construction management software platform is right for your residential construction business? Our handy comparison guide on the best software for small home builders is packed with insights on choosing the right platform for your needs.Using construction budgeting software to improve soft cost management
Intelligent construction management software streamlines the process of estimating and tracking both hard and soft costs.
With features like built-in budgeting tools and real-time data access, platforms like Buildxact help builders simplify cost management, reduce manual budgeting admin, and maintain tighter control over profits.
Benefits of using construction management software for soft cost management
For time-strapped builders juggling multiple roles, modern construction budgeting software can be a game-changer, transforming tedious manual processes into fast and streamlined operations.
Here are some of the ways a construction management platform like Buildxact can simplify soft cost management:
Improved cost visibility
Tracking soft costs in separate spreadsheets or emails makes it harder to visualize the full project spend. Centralized cost tracking consolidates all expenses into a single view, providing improved visibility and management.
Accurate budgeting
Budgets often drift when estimates aren’t tied to real-time costs. Linking estimates with live financial data ensures your numbers reflect what’s actually happening on-site, reducing the risk of overruns.
Faster estimating
Manually compiling estimates from various sources slows down projects and increases errors. Smart estimating templates and AI tools can generate accurate cost breakdowns in minutes.
For example, using Buildxact’s AI-powered estimating assistant, builders generate accurate estimates seven times faster, with a 30% higher win rate.
Centralized documentation
Important files, such as permits, invoices, or contracts, can become misplaced or incorrectly versioned. A single digital repository keeps documentation organized and accessible to everyone who needs it.
Simplified tracking
Without a connected system, following the flow of soft costs alongside materials and labor can be time-consuming. Integrated job tracking tools, like Buldxact’s real-time cost tracking feature, let you monitor every cost type within the same project view.
Better forecasting
When cost data is siloed, predicting future expenses becomes a matter of guesswork. Centralized reporting and historical insights allow builders to forecast more accurately and plan for upcoming financial needs.
Streamlined approvals
Manual approvals for quotes or variations can delay — and confuse — progress. Digital workflows eliminate bottlenecks, enabling quicker sign-offs and providing an auditable trail of changes.
Enhanced accountability
Unclear cost ownership can lead to duplicated charges or missed approvals. Assigning specific responsibilities across the team creates transparency and ensures every cost has an accountable owner.
Reduced admin time
Without intelligent construction software, builders often spend hours reconciling spreadsheets and updating reports. Integration with your existing tools and systems enables you to harness the full potential of your tech stack, build an ecosystem of capabilities, and eliminate repetitive tasks without incurring additional costs.
Smarter decision-making
Relying on outdated data makes it challenging to adjust budgets proactively. Real-time dashboards and live cost reporting give builders the insight needed to make informed decisions and maintain profitability.
Construction Soft Costs: FAQs
What is an example of a soft cost?
A soft cost is any non-physical project expense, such as design fees, permits, insurance, or legal services. These costs support the build but don’t involve materials or on-site labor, making them essential to budgeting and overall project management.
What is the difference between a hard cost and a soft cost in construction?
Hard costs are the direct, physical expenses of building: materials, labor, and equipment. Soft costs are indirect and encompass professional services, permits, financing, and administrative expenses. Both are vital for accurate estimating and must be tracked to understand the true profitability of a project.
How can I accurately calculate my construction soft costs?
Start by listing all non-construction expenses, such as design, insurance, permits, accounting, and project management. Use construction cost management software to group and track these costs in real time, ensuring they’re included in your total project budget from the outset.
Get Better Visibility Into Your Construction Costs and Keep Every Job On Budget
Every successful construction project begins with a clear understanding of its actual costs. By tracking both hard and soft costs, builders can maintain protected margins and keep jobs profitable at every stage of the build.
An intelligent construction management platform like Buildxact brings these capabilities together into one connected platform, linking budgets with estimating and cost tracking to give you full control over your project spend in real-time.
Don’t let unseen expenses eat into your profit. Gain the visibility you need to plan accurately and keep project costs on track. Ready to see it in action? Book a demo to see how Buildxact can transform your residential construction business, or get started with a 14-day free trial.
