“My overhead is 10%” is not a number.
Ten percent of what? Overhead gets recovered by marking up direct job cost, so the rate has to be calculated against direct cost, not revenue. Get that denominator wrong and you undercharge on every job you bid. Worse: the rate is not fixed — if volume falls and overhead does not, the rate has to rise or the year comes up short.
Everything not charged to a job. If it survives a slow month, it is overhead.
Labor, burden, material, subs, equipment — charged to jobs. Not revenue.
Stress test it
Overhead is sticky. Volume is not. Model a slower year at today's overhead.
Hold the old rate through a slow year and the shortfall is not spread across the jobs. It comes straight off the bottom line, all at once, in December.
The two denominators, side by side
| On direct cost | On revenue | |
|---|---|---|
| What you divide by | Direct job cost | Contract price |
| What it is for | Marking up an estimateYou know cost first. Price comes after. | Reading a P&L after the factUseful for reporting, useless for bidding. |
| On these numbers | 20.87% | 17.27% |
| Use the wrong one and | You add 17.27% to cost instead of 20.87% and under-recover on every single job. | |
The two rates describe the same money. They are not interchangeable, and the one that goes into an estimate is always the direct-cost rate — because when you are bidding, cost is the thing you know and price is the thing you are working out.
Recalculate this every year, and again after any real change in volume or fixed cost. An overhead rate set in a busy year and carried into a slow one is one of the quietest ways to lose money in this business, because nothing about it looks wrong until the year is over.
Do this at scale
A rate is only as good as the cost data under it.
Both halves of this calculation — what overhead really is, and what direct cost really was — come out of the books, not memory.
Job Costing & WIP Tracker
Actual cost by phase across every job, so the denominator in this calculation is a measured number instead of an estimate of an estimate.
Construction Estimating Spreadsheet
A four-layer markup that separates overhead, contingency, escalation and profit — so you can see what each one is actually doing to the price.
Excel and Google Sheets · one-time purchase · single-business commercial license