Contractor overhead costs are the most misunderstood number in the business. Ask ten contractors what their overhead is and you'll get ten different answers — most of them wrong. Underestimating overhead is one of the fastest ways to run a busy business that doesn't make money.
The National Association of Home Builders says the typical contractor runs about 10% overhead. But that's an average across large builders with economies of scale. For a small contractor doing $300,000–$600,000 in annual revenue, real overhead often runs 15–25% once you include everything. Underestimating overhead is one of the top reasons contractors lose money on jobs.
What Counts as Overhead?
Overhead is every cost your business incurs that isn't directly tied to a specific job. Here's a comprehensive checklist:
Vehicle & Transportation
- • Truck payments or lease
- • Fuel and maintenance
- • Registration and inspection
- • Commercial auto insurance
- • Trailer costs
Typically $800–$1,500/month
Insurance & Bonding
- • General liability insurance
- • Workers' compensation
- • Professional liability / E&O
- • Umbrella policy
- • Surety bonds
Typically $5,000–$15,000/year
Office & Administration
- • Office or shop rent
- • Utilities and internet
- • Phone and mobile service
- • Office supplies
- • Storage unit rental
Professional Services
- • Accountant / bookkeeper
- • Attorney (contracts)
- • Tax preparation
- • IT support
- • Payroll service
The Biggest Hidden Cost: Your Non-Billable Time
Every hour you spend on something other than building is non-billable time with a real cost: writing estimates, meeting potential clients, ordering materials, scheduling crews, driving between sites, and handling callbacks.
For a typical small contractor, non-billable time can easily reach 15–20 hours per week. At $50/hour, that's $750–$1,000/week — or $39,000–$52,000/year — in overhead that's invisible if you don't track it.
How to Calculate Your Overhead Rate
Method 1: Percentage of Revenue
Overhead Rate = (Total Annual Overhead / Total Annual Revenue) × 100
Example: $72,000 overhead on $450,000 revenue = 16% overhead rate
Method 2: Per Job
Per-Job Overhead = Total Monthly Overhead / Average Jobs Per Month
Example: $6,000 monthly overhead / 3 jobs = $2,000 per job
Method 3: Percentage of Direct Costs
Overhead Allocation = Job Direct Costs × (Total Overhead / Total Direct Costs)
Best for businesses with a mix of small and large projects
How Overhead Affects Your Bidding
If your overhead rate is 16% and your target net profit is 10%, you need a minimum markup of 26% on direct costs just to break even on overhead and hit your profit target. Learn how to calculate your real profit margins and follow our step-by-step pricing guide to make sure you're pricing correctly.
Minimum Markup Formula
Minimum Markup = Overhead Rate + Desired Net Profit Margin
If overhead is 16% and you want 12% profit, you need at least a 28% markup.
Sample Monthly Overhead Tracker
| Category | Monthly Cost |
|---|---|
| Vehicle (payment + fuel + maintenance) | $1,200 |
| Insurance (GL + WC + auto) | $850 |
| Office / Shop | $600 |
| Phone + Internet | $250 |
| Accounting + Bookkeeping | $300 |
| Software + Subscriptions | $150 |
| Marketing | $400 |
| Tool Replacement | $200 |
| Licensing (amortized) | $75 |
| Non-billable time (15 hrs × $50) | $3,250 |
| Total Monthly Overhead | $7,275 |
At $7,275/month on $37,500 in monthly revenue, that's a 19.4% overhead rate. Not the 10% many contractors assume.
Know Your Overhead, Know Your Business
When you know your true overhead, you price jobs correctly. You stop accidentally working for free. You make informed decisions about which jobs to take and which to walk away from. Ready to put these numbers to work? See how to calculate your real profit margins and learn how to set up job costing for your business.
ProfitTrackr makes this easy by automatically allocating your overhead costs across jobs, showing you the real net profit on every project — not just the gross margin that hides half the picture.
Ready to see your real profit margins?
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