Overhead and Profit Chart: What to Price a Job At
Fourteen direct job costs against five overhead and profit combinations, with the markup each combination actually equals and what adding the percent to the cost instead would have left you with.
Overhead and profit are both percentages of the price, not of the cost. That single sentence is the difference between pricing a job correctly and giving away a large slice of the profit line, and it catches a lot of otherwise careful estimators.
Ten percent overhead and ten percent profit means the price is the cost divided by 0.80, not the cost times 1.20. On a $10,000 job that is $12,500 rather than $12,000, and the $500 you did not charge is forty percent of the profit you thought you were making.
Price by direct job cost and O and P
| Direct job cost | 10 + 5 | 10 + 10 | 15 + 10 | 20 + 10 | 25 + 15 |
|---|---|---|---|---|---|
| $1,000 | $1,176.47 | $1,250.00 | $1,333.33 | $1,428.57 | $1,666.67 |
| $2,500 | $2,941.18 | $3,125.00 | $3,333.33 | $3,571.43 | $4,166.67 |
| $5,000 | $5,882.35 | $6,250.00 | $6,666.67 | $7,142.86 | $8,333.33 |
| $7,500 | $8,823.53 | $9,375.00 | $10,000.00 | $10,714.29 | $12,500.00 |
| $10,000 | $11,764.71 | $12,500.00 | $13,333.33 | $14,285.71 | $16,666.67 |
| $15,000 | $17,647.06 | $18,750.00 | $20,000.00 | $21,428.57 | $25,000.00 |
| $20,000 | $23,529.41 | $25,000.00 | $26,666.67 | $28,571.43 | $33,333.33 |
| $25,000 | $29,411.76 | $31,250.00 | $33,333.33 | $35,714.29 | $41,666.67 |
| $35,000 | $41,176.47 | $43,750.00 | $46,666.67 | $50,000.00 | $58,333.33 |
| $50,000 | $58,823.53 | $62,500.00 | $66,666.67 | $71,428.57 | $83,333.33 |
| $75,000 | $88,235.29 | $93,750.00 | $100,000.00 | $107,142.86 | $125,000.00 |
| $100,000 | $117,647.06 | $125,000.00 | $133,333.33 | $142,857.14 | $166,666.67 |
| $150,000 | $176,470.59 | $187,500.00 | $200,000.00 | $214,285.71 | $250,000.00 |
| $250,000 | $294,117.65 | $312,500.00 | $333,333.33 | $357,142.86 | $416,666.67 |
What each combination really is
| Overhead | Profit | Price on $10,000 | Markup this equals | Added to cost instead |
|---|---|---|---|---|
| 10% | 5% | $11,764.71 | 17.6% | $11,500.00 |
| 10% | 10% | $12,500.00 | 25% | $12,000.00 |
| 15% | 10% | $13,333.33 | 33.3% | $12,500.00 |
| 20% | 10% | $14,285.71 | 42.9% | $13,000.00 |
| 25% | 15% | $16,666.67 | 66.7% | $14,000.00 |
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The overhead and profit calculator takes your own measurements and returns the number for your job, plus the material list as a printable document. Every cell in the table above came out of that same calculator, run at build time.
Ten and ten is the old standard and it is a floor
Ten percent overhead and ten percent profit has been the customary allowance in insurance restoration work and in a lot of general contracting for decades, and it survives because it is easy to say rather than because it is right.
It is a reasonable floor for a large contract with long production runs. It is nowhere near enough for a small residential job, where the overhead of estimating, scheduling, mobilising and supervising is spread across a few thousand dollars rather than a few hundred thousand.
Work out your own overhead rate before picking a column
Take a year of overhead and divide it by a year of revenue. That percentage is what overhead recovery has to be before a single dollar of profit exists. If it comes out at 22 percent, then pricing at 10 percent overhead has been losing 12 percent of revenue on every job.
That calculation is worth redoing every year, because overhead tends to grow quietly while revenue is assumed to have grown faster.
The arithmetic, in one line
Price equals cost divided by one minus overhead minus profit, with both expressed as decimals. Fifteen percent overhead and ten percent profit gives cost divided by 0.75, which is a 33.3 percent markup on cost.
Working the other way, markup equals margin divided by one minus margin. The markup to margin chart runs that conversion at every percentage, which is the check to do when a number feels wrong.
Everything that is only on this job is a direct cost
Material, labor with its burden, subcontractors, rented equipment, the permit, the dumpster and the portable toilet are direct costs. So is the supervision that exists only because this job exists, and so is the travel that would not have happened otherwise.
The truck, the insurance, the phone, the office and your own estimating time are overhead, which is precisely why the overhead percentage exists. Putting a cost in both places double charges the customer, and putting it in neither is how a busy year ends with no money in it.
Questions people ask
What is a normal overhead and profit for a contractor?
Ten and ten is the customary allowance and is a floor rather than a target. Small residential work commonly needs 15 to 25 percent overhead, because the same estimating and supervision cost is spread across a much smaller job.
How do you calculate overhead and profit on a job?
Divide the direct job cost by one minus the overhead and profit percentages expressed as decimals. A $10,000 cost at 15 percent overhead and 10 percent profit is $10,000 divided by 0.75, which is $13,333.33.
Is it wrong to just add the percentages to the cost?
It shorts you every time. Adding 25 percent to a $10,000 cost gives $12,500, and the $2,500 you added is only 20 percent of that $12,500 price. You set out to recover 25 percent of the price and recovered 20.
What markup is 10 and 10?
Twenty five percent on cost. The price is the cost divided by 0.80, so a $10,000 job prices at $12,500.
Does overhead and profit go on subcontractor work too?
Yes. Managing a subcontractor costs overhead and carries risk, both of which are yours. Some general contractors apply a lower rate to sub work than to self performed work, but applying nothing means the sub's portion of the job pays for none of the office.