Overhead and Profit on a $40,000 Job
Price the job at
$53,333.33
15% overhead and 10% profit, both taken out of the price rather than added to the cost.
How that number is worked out
These are the figures this page was built with and every line the calculator produces from them. Change anything above and all of it moves.
- Direct job cost: material, labor, subs, equipment40000 $
- Overhead recovery15 %
- Profit you want to keep10 %
Price the job at$53,333.33
| Direct job cost | $40,000.00 |
|---|---|
| Overhead recovered at 15% | $8,000.00 |
| Profit at 10% | $5,333.33 |
| Price | $53,333.33 |
| Markup this equals | 33.3% |
| If you had added the percent to cost instead | $50,000.00short by $3,333.33 |
Overhead rate compared
Profit is held at 10 percent and only the overhead rate moves, so the last column shows what the wrong method would have charged at each level.
| Overhead rate | Price the job at | Markup this equals | If you had added the percent to cost instead |
|---|---|---|---|
| 10% | $50,000.00 | 25% | $48,000.00 |
| 15% | $53,333.33 | 33.3% | $50,000.00 |
| 20% | $57,142.86 | 42.9% | $52,000.00 |
| 25% | $61,538.46 | 53.8% | $54,000.00 |
What else matters here
Forty thousand of cost prices at $53,333.33, with $8,000 of overhead recovered and $5,333.33 of profit.
That profit is also the whole margin for error on the estimate. Go over cost by thirteen and a third percent, which is $5,333 on a $40,000 job, and the profit is exactly zero. Go over by twenty percent and you are paying for the privilege of having worked.
This is why the contingency belongs in the cost rather than in the profit. Three to five percent of cost, written into the estimate as a line, is the difference between a normal job with a few surprises and a job that earned nothing. Profit at ten percent is not a cushion for bad estimating, it is what the business earns when the estimate was right.
What this calculator assumes
- The classic 10 and 10 is overhead 10 percent and profit 10 percent. Almost nobody's overhead is actually 10 percent, so work out your own: last year's overhead divided by last year's revenue.
- Both numbers here are treated as margins, taken out of the price, not markups added to cost. That is the conservative reading and it is the one that leaves you whole.
- The wrong way, adding 25 percent to cost and calling it 25 percent O and P, leaves you 5 percentage points short on a $24,000 job. The comparison is below.
Questions people ask
What should I charge for a job that costs me $40,000?
$53,333.33 at 15 percent overhead and 10 percent profit, a 33.3 percent markup on cost.
How much can my costs run over before I lose the profit?
On this job, 13.3 percent. The profit is $5,333 on $40,000 of cost, so that is the whole margin for error. Carry a 3 to 5 percent contingency inside the cost so profit is not doing that job.
Why not just add the percentage to the cost?
Because a percentage added to cost comes back out of the price as a smaller percentage. Adding 25 percent to a $50,000 cost gives $62,500, and 25 percent of that price is $15,625, not the $12,500 you added. The calculator treats both figures as margins taken out of the price, which is the reading that leaves you whole.
The overhead and profit calculator takes any dimensions you like and hands back the same list.