How Much Overhead to Add to a Construction Bid

“Ten and ten” — ten per cent for overhead, ten for profit — is the shorthand version of this question. It is easy to say out loud. It is also a number nobody in your company has ever checked against your own rent, your own insurance renewal or your own truck payments.

Worse, it is the wrong unit. Here is the demonstration, using two bids that cost exactly the same.

Bid A is a cabinet package, a countertop sub and about three days of a four-person crew. Bid B is that same crew on site for the better part of six weeks, with you scheduling, supervising and answering the phone the whole time. They consume wildly different amounts of the company, and a percentage of cost charges them within a dollar of each other. Price a year of work that way and you will systematically win the labour-heavy jobs — the ones you priced too cheaply — and lose the easy ones.

Overhead is consumed by time. So charge it by time.

The Calculation, in Two Halves

Half one: what your overhead actually is

Every cost that arrives whether or not anyone is on a job. Not materials, not field wages, not subcontractors — those are direct costs and they live on the takeoff.

These are this example’s figures, not a benchmark. Pull yours from twelve months of bank statements rather than from memory; a from-memory total tends to miss the lines that leave the account quietly.

One line deserves a note. If you take a salary for running the company as distinct from swinging a hammer, that salary is overhead and belongs in this list. If you pay yourself only out of job profit, it is not — but then your target margin has to be high enough to actually feed you, which is a decision you should make deliberately rather than discover in December.

Half two: the hours that have to carry it

Then:

$101,220 ÷ 5,990.4 = $16.90 of overhead per billable field hour

And the number that follows from it, which is the one you should actually memorise:

That is break-even. Not a target, not a rate to quote — the line below which an hour of field time costs the company money.

Count Only the People, Only the Hours

Two errors inflate the denominator, and both push your rate down and your bids under water.

Counting people who are not on jobs. The office manager whose salary is in the overhead list above must not also appear in the crew count. If she were in both, she would be paying for herself twice — once as a cost and once as a source of billable hours she does not generate. Field crew means people whose time goes onto a job.

Believing in a 40-hour billable week. Utilisation is where estimates go to die quietly, because it is the one input with no invoice behind it to check against. Travel between jobs, loading the truck, the supplier run, the weather day, the callback, the rework, the hour spent looking for the part — all paid, none billable.

Here is what an optimistic guess does to the rate:

The per-bid effect looks small — $2,014.00 of price, or $1,450.08 of overhead, between the two extremes on a $126,000 job — and that is exactly why it is dangerous. The error does not show up on any one bid. It shows up at the end of the year, when a rate built on 85% has been applied to a company that ran at 70%, and $101,220 of overhead came back as roughly $83,000. Nothing on any single job looked wrong.

The honest way to set it: take last year’s paid field hours from payroll, take the hours actually billed to jobs from your job records, and divide. If you have never tracked it, use 75% as a placeholder and replace it the moment you have three months of real data.

Crew Size Moves It More Than Anything Else

Your overhead rate is almost entirely a function of how many billable hours you have to spread a fixed cost across:

Two readings of that table, and the second is the important one.

The obvious one: a two-person operation must recover $33.79 an hour against the same office, the same insurance and the same truck. Small contractors are not imagining it when bigger competitors underbid them — the bigger competitor genuinely has a lower overhead rate, and it has nothing to do with being better at the work.

The one that costs money: this table is the arithmetic behind “we’ll grow into it.” Add a fifth person and your rate drops to $13.52 an hour — but only if that person is actually billable at 78%. Hire in anticipation of work that has not been signed and you have added wages to the numerator side of your life while the denominator sits in the yard. Re-run this calculation the month the crew size changes, not at year end.

Turning the Rate Into a Number on a Bid

Multiply by the labour hours in that bid. That is the whole method.

Add it once, per bid, against the bid’s total labour hours — not line by line. Spread across every line, overhead lands on the $18,400 cabinet package and the $7,450 tile sub as well, neither of which consumes any of your office, and the bid inflates for no reason a client can be shown.

And the cost of leaving it off altogether: price the direct cost alone at a 28% margin and you bid $118,855.17 on a job that costs $90,713.32. You kept 23.68%. That is $7,135.55 of profit gone from a job you will remember as having gone to plan — which is the whole problem with overhead. It never appears as a loss. It appears as a year that was busier than it was profitable.

This spoke sits under the full bid walkthrough: how to estimate a construction job, where the same $125,990.72 bid is built line by line from an empty sheet.

Related Reading

• How to estimate a construction job — the pillar: takeoff, waste and tax, overhead, then price from the margin.
• Fixed price vs time and materials — what happens to overhead recovery when you bill by the hour instead.
• How to bid a bathroom remodel — a 150-hour job carrying $2,535.00 of overhead, worked end to end.

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Construction Estimating, Bid & Job Costing Spreadsheet — $19.99

The Overhead and Burden tab is this article, live. Ten overhead lines you replace with your own, your crew size, paid hours per week, weeks worked per year and honest billable utilisation in four boxes, and it returns your overhead recovery per billable hour and your fully loaded cost per field hour — then prints the markup-versus-margin conversion table underneath, so the two numbers that decide whether a bid makes money sit on one screen.

That rate then flows automatically: Bids and Win Loss multiplies it by each bid’s total labour hours, adds it once, and solves the price from your target margin. Change your utilisation from 78% to 70% in one box and every open bid in the file re-prices itself.

Around it: a 260-line Bid Estimator where material lines pick up waste and sales tax on their own; Jobs measuring profit at completion with cost to complete and the margin slip against bid; Job Costs keeping committed apart from incurred; Change Orders, Draw Schedule with retainage, Subcontractors with W-9 and insurance expiry, Materials, a 26-week Schedule, and a Dashboard ranking every live job by the margin it will really deliver. Fourteen tabs, 10,450 formulas, 32 integrity checks, and a worked sample contractor already loaded.

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