What Is Overhead and Profit (O&P)? The Ten and Ten Explained
Two separate numbers that are usually quoted as one. Overhead is what it costs to run the business whether or not you work today. Profit is what is left after every cost, including that overhead, is paid.
Also called O&P, Ten and ten, GC overhead and profit.
Split a price into overhead and profit Enter your cost and the two percentages and it shows the sequence, the subtotal and the final price. Free, no signup.They are two different things
Overhead is the cost of existing. Truck payment and fuel, general liability and workers compensation, the phone, the office or the corner of the house that is the office, software, licensing, the person who answers the phone, the hours you spend estimating jobs you do not win. None of it is billable to any one job and all of it has to be paid every month.
Profit is what is left after direct cost and overhead are both covered. It is the return for carrying the risk, and it is the only money that can buy the next truck or survive a bad quarter.
Quoting them together as O&P is normal. Thinking of them as one pot is what kills shops, because the overhead half is already spent before the job starts.
Where ten and ten comes from
Ten percent overhead and ten percent profit is the long standing convention for a general contractor coordinating multiple trades, and it is applied in sequence rather than as a flat twenty. Ten percent overhead goes on the job cost, then ten percent profit goes on that subtotal, which comes to 21 percent of cost overall.
It is a convention, not a law and not a floor. Small residential shops with a real overhead rate above ten percent and a genuine specialty routinely need more, and pricing at ten and ten because it is the familiar phrase is how a contractor prices himself below his own cost of doing business.
Know your actual overhead rate before you use anyone's number
Add up twelve months of everything that is not job material and not job labor. Divide it by twelve months of revenue. That percentage is your overhead rate, and it is the number that has to be recovered before a dollar of profit exists.
Almost every contractor who does this the first time finds a number higher than he expected, usually because unbillable time was never counted as a cost. Estimating, driving, chasing payment and warranty callbacks are all overhead.
O&P on an insurance claim
In insurance restoration, O&P has a narrower meaning: the general contractor's overhead and profit for coordinating the trades, on top of the trade line items in the estimate. The usual industry position is that it is owed when the job is complex enough to genuinely need a general contractor, and a common rule of thumb for that is three or more trades.
Carriers argue this line often, sometimes by paying the trade items and omitting O&P, sometimes by holding it back as depreciation. Whether it is owed turns on the policy language and on state law, so an estimate that shows the trades separately and states the coordination need is a much stronger position than one that buries everything in a single price.
Ten and ten on a real job
Applied in sequence, the way an estimating package does it, not as a flat twenty percent.
| Job cost | Plus 10% overhead | Plus 10% profit | Price to the customer |
|---|---|---|---|
| $5,000 | $500 | $550 | $6,050 |
| $10,000 | $1,000 | $1,100 | $12,100 |
| $25,000 | $2,500 | $2,750 | $30,250 |
| $50,000 | $5,000 | $5,500 | $60,500 |
| $100,000 | $10,000 | $11,000 | $121,000 |
Ten and ten is 21 percent on top of cost, not 20. The profit percentage is applied after the overhead, not beside it.
La misma explicación, línea por línea, con las palabras en inglés que aparecen en el formulario. Gastos generales y ganancia, en español.
What to do with it
Questions people ask
Is overhead and profit the same as markup?
Overhead and profit is what the markup is made of. The markup is the single percentage you add; O&P is the answer to what that percentage is paying for. A contractor who calls the whole markup profit is paying his overhead out of what he thinks is his earnings.
What does ten and ten mean?
Ten percent overhead and then ten percent profit, applied one after the other. On a 10,000 dollar cost that is 1,000 then 1,100, for a 12,100 dollar price, which is 21 percent over cost rather than 20.
When does an insurance company owe O&P?
The common industry position is that it is owed when the repair genuinely requires a general contractor to coordinate it, often described as three or more trades being involved. It turns on the policy wording and on state law, so it is worth quoting the specific policy language rather than the rule of thumb.
Should overhead and profit be one line or two on my estimate?
Two, whenever the customer is an insurer, a public body or anyone working from a cost plus contract, because the two numbers are justified in different ways. On ordinary fixed price residential work a single price is normal and showing the split invites a negotiation about your business costs.