Overhead and Profit on a $500,000 Job
Price the job at
$666,666.67
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, equipment500000 $
- Overhead recovery15 %
- Profit you want to keep10 %
Price the job at$666,666.67
| Direct job cost | $500,000.00 |
|---|---|
| Overhead recovered at 15% | $100,000.00 |
| Profit at 10% | $66,666.67 |
| Price | $666,666.67 |
| Markup this equals | 33.3% |
| If you had added the percent to cost instead | $625,000.00short by $41,666.67 |
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% | $625,000.00 | 25% | $600,000.00 |
| 15% | $666,666.67 | 33.3% | $625,000.00 |
| 20% | $714,285.71 | 42.9% | $650,000.00 |
| 25% | $769,230.77 | 53.8% | $675,000.00 |
What else matters here
Half a million of direct cost prices at $666,666.67 at residential rates, recovering $100,000 of overhead and earning $66,666.67 of profit.
Competitive commercial bidding does not look like that. Eight percent overhead and five percent profit is a normal bid at this size, and it prices the same job at $574,712.64, a markup of 14.9 percent. That is ninety two thousand dollars less for identical work, and it is not irrational: the overhead percentage is genuinely lower because the volume is real, the jobs are larger and fewer, and one estimator can chase work that would take a residential company a year to sell.
The other half of the answer is how much of the work is self performed. A general contractor who subs out most of a job is carrying less risk and less labor on each dollar, and the rate applied to subcontracted work is often deliberately lower than the rate applied to self performed work. That is a decision to make once, write down, and apply the same way on every bid, because the alternative is a different set of percentages every time and no way of knowing afterwards which jobs actually earned anything.
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 $500,000?
$666,666.67 at residential rates of 15 percent overhead and 10 percent profit. A competitive commercial bid at 8 and 5 would be $574,712.64, a 14.9 percent markup.
Should subcontracted work carry the same markup as my own work?
Often a lower one, because you are carrying less labor and less risk per dollar. Whatever you decide, set the two rates once and apply them the same way on every bid.
How do I work out my real overhead percentage?
Last year's overhead divided by last year's revenue. Overhead is everything that is not job cost: insurance, the truck, the phone, software, the accountant, advertising, your office time. Almost nobody's overhead is the 10 percent in the old rule of thumb.
The overhead and profit calculator takes any dimensions you like and hands back the same list.