YOUR OVERHEAD RATE IS WRONG BY DESIGN.
Most subcontractors calculate overhead by dividing last year's overhead costs by last year's revenue. That's wrong for three reasons: the revenue base is stale, the cost categories are incomplete, and field costs that belong in job cost get included in overhead. The result is a number that's 5 to 15 points too low, baked into every estimate and compounding on every job you win.
The standard overhead target is 10 percent. Most subcontractors are at 25 to 42 percent and have no idea, because the number they use in every bid was built once a year off a denominator that was already out of date. That distance, 15 to 32 points, is what the wrong calculation costs on every job you price and win. It doesn't read as a bad month on the P&L. It reads as a busy year that ends with no money in the account and no obvious reason why.
WHAT IT MEANS.
An overhead rate is the percentage of revenue consumed by the cost of operating the business rather than the cost of building the work.
The rate is a pricing input. Every bid you send out includes it, and it is underneath the markup whether anybody checked it or not. A rate that's 8 points light doesn't cost you 8 points once, it costs you 8 points on every job you win for as long as the number goes unchecked.
THE FOUR REASONS IT COMES OUT WRONG.
Stale revenue base
You divide last year's overhead by last year's revenue, and this year's revenue is different. If revenue grew 30 percent and overhead didn't change, the rate reads lower than it is. If revenue dropped, the rate reads higher. The denominator is always wrong because you're using history to estimate a forward cost structure. The overhead rate should be calculated on projected revenue rather than last year's actual.
Missing cost categories
The standard overhead list is rent, utilities, and insurance. What gets missed is owner salary priced at market value rather than what you pay yourself, benefits for office staff, software subscriptions, training, professional services, business taxes and licenses, vehicle costs for non field staff, and a scenario plan for the slow season. Most subcontractors are missing 20 to 35 percent of their true overhead in the calculation.
Field costs blended into overhead
Superintendent time that belongs to a specific job goes to overhead. Project management hours for a specific contract go to overhead. Equipment maintenance for a piece that only worked one job goes to overhead. When direct job costs get absorbed into overhead, the overhead rate is overstated and the job margins are understated. You're placing job costs inside overhead and reading a distorted picture of both numbers.
Never updated mid year
You added a PM in February. Office admin went full time in April. The workers comp renewal came in 12 percent higher in June. Each of those moved your true overhead rate. Most subcontractors calculate overhead once a year at tax time, so by June the rate is already wrong and every bid from February forward used the wrong number.
WHAT IT LOOKS LIKE IN DOLLARS.
The standard overhead target is 10 percent. Most subcontractors are at 25 to 42 percent without knowing it. That distance, 15 to 32 points, is what the wrong calculation costs you on every job you price and win.
THREE STEPS, IN ORDER.
Fixed costs are rent, utilities, the lay down yard, and telecom. Staffing covers owner salary at market rate, the fractional CFO, in house accounting, and admin. Benefits go in for office staff only, because field benefits belong in job cost. Software and services covers accounting, the job costing platform, estimating software, the website, and IT. Equipment maintenance splits, with general upkeep to overhead and project specific damage to job cost. Then add business taxes, dues, and licenses, and add a scenario plan for the slow season when fixed costs don't drop with revenue.
Use the revenue you expect to do this year, or better, a conservative estimate of it. If you project $6M and do $4M, your overhead rate was understated all year. It's always better to be slightly conservative on the revenue denominator than to underprice six months of bids.
The overhead rate is a CFO level monthly task. Every time a cost component moves, whether that's a new hire, a software subscription, or a workers comp renewal, the rate updates before the next bid goes out. The published industry figures are Jones Maresca and Company's 8 to 15 percent total indirect cost for construction as a whole and CFMA's 11.8 percent SG&A across all respondents, and both describe the market rather than set a target. The rate for your trade and band is on /construction-overhead-rates-by-trade. When your rate rises above your own trade benchmark, the CFO works out what moved and whether it's a cost structure problem or a revenue base problem.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing. No payroll. The one-time onboarding fee is right here in the table.
| Last 12 months revenue | Monthly fee | One-time onboarding |
|---|---|---|
| Under $1M | $1,900 to $3,300 | $1,000 |
| $1M to $3.5M | $2,600 to $5,300 | $1,500 |
| $3.5M to $6.5M | $3,800 to $8,300 | $3,000 |
| $6.5M to $9.5M | $5,100 to $11,800 | $4,500 |
| $9.5M to $12.5M | $6,100 to $14,900 | $6,000 |
| $12.5M to $15.5M | $7,400 to $17,650 | $7,500 |
| $15.5M to $18.5M | $9,400 to $22,400 | $9,000 |
| $18.5M+ | Quoted individually | Quoted individually |
The onboarding fee covers migrating your books back to the start of your last taxable year and getting you fully operational in 60 days. It's billed once, with your first invoice. It's the same for all three tiers. Your first month is prorated, and your monthly engagement starts on the first of the first full month.
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items. The onboarding fee is right here in the table.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions and never in a report.
Your bookkeeper still does the books.
Every job shows its margin while it is still open.
Everything in Core, plus the bookkeeping and bank reconciliations done for you, and the job costing and WIP software set up, loaded with your cost codes, and managed every month. Use your own online software, or move to ours and we cover it.
A bookkeeper we choose does the books and reconciliations. No payroll.
You approve, and the money side gets handled.
Everything in Strategic, plus a controller we choose who handles your bills and receivables for you the way an in-house controller would. They call vendors, pay the bills and keep the accounting current. We plan the cash flow first, and you approve every payment because it is your money.
A controller we choose does the payables and receivables. No payroll, no pay applications, no collections.
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