CONSTRUCTION OVERHEAD RECOVERY RATE.
Your overhead rate is the percentage you apply in bids to cover fixed costs. Your overhead recovery rate is how much of your real overhead you collected through the field. The two numbers are almost always different, and the distance between them is unrecovered overhead that comes straight out of net profit. A contractor bidding at 10 percent with a real overhead rate of 17 percent is 7 points short on recovery. On $4M in revenue, that's $280,000 per year in overhead costs that aren't being collected through project billings.
Almost every subcontractor can tell you the overhead rate in their bids. Almost none can tell you what share of their overhead the field returned last year, because the second number takes a backward look at what overhead cost against what billings brought in. The bid rate is a forecast. The recovery rate is the scoreboard. Until you run the second calculation, a bid rate that has been wrong for years looks identical to one that's right, and the difference has been funded out of net profit, cash reserves, or the line of credit without anybody deciding to.
WHAT IT MEANS.
Overhead recovery rate is the share of the overhead you incurred that you collected back through project billings, calculated as overhead recovered divided by overhead incurred.
The rate in your bids is a forward looking estimate of what overhead will cost as a share of revenue. The recovery rate is a backward looking measurement of what you collected against what you spent. Both numbers are useful, but only the second one tells you whether the first one was ever true.
WHERE THE OVERHEAD GOES UNCOLLECTED.
The bid rate was never checked against the real rate
A contractor bidding at 10 percent with a real overhead rate of 17 percent is 7 points short on every job he wins. On $4M in revenue that's $280,000 per year of overhead that never got collected through project billings. The bid rate came from habit or from what the market seemed to accept, and nobody ever divided the fixed costs by the revenue to check it.
The shortfall comes straight out of net profit
If overhead incurred was $490,000 and you recovered $350,000 through billings, the missing $140,000 was covered by reducing net profit below what the P&L suggested. When margins aren't sufficient to absorb it, it comes out of cash reserves or the line of credit instead. Either way the money left the business, and no line on the income statement is labeled to tell you that's what happened.
Owner pay is missing from the overhead total
The recovery calculation only works if owner compensation sits in overhead at market rate. If the owner is taking $150,000 in draws but overhead only shows $60,000 in owner compensation, the P&L overstates profit by $90,000. That single omission is usually the largest single error in a subcontractor's overhead rate, and it makes the bid rate look defensible when it's not.
WHAT IT LOOKS LIKE IN DOLLARS.
Pull every fixed cost from the last 12 months: owner salary at market rate, office staff, rent, insurance, software, vehicles, equipment maintenance overhead, marketing, accounting, and everything else that's not a direct job cost. Add them up, and that's your overhead incurred. For most $2M to $8M subcontractors this number is $180,000 to $600,000 per year depending on revenue size and overhead structure.
Overhead recovered is your bid overhead rate multiplied by your revenue. If you bid 10 percent overhead on $3.5M in revenue, you recovered $350,000 in overhead through project billings. Compare that to your overhead incurred: if overhead incurred was $490,000 and you recovered $350,000, you're $140,000 short.
Overhead recovery rate equals overhead recovered divided by overhead incurred, times 100. In the example above, $350,000 divided by $490,000 times 100 is a 71.4 percent recovery rate. You recovered 71 cents of every dollar of overhead you incurred through project billings, and the other 29 cents, $140,000, came from net profit or from cash reserves and the LOC.
A recovery rate of 95 percent or better is excellent, because the bid rate closely matches the real overhead rate. From 85 to 95 percent is good, a small shortfall a margin buffer can absorb. From 70 to 85 percent is a warning, because the bid rate is meaningfully below the real rate. Below 70 percent is critical: every job is subsidizing overhead that was never in the bid.
TWO LEVERS, AND MOST CLIENTS PULL BOTH.
Calculate the real overhead rate the same way the calculator does, total annual fixed costs divided by annual revenue, then apply that rate to every new bid from this point forward. This doesn't change your existing contracts. It makes sure every new contract is priced at the correct overhead rate. The shortfall on existing work closes as those projects complete and correctly priced work replaces them, which typically takes 6 to 12 months as the backlog turns over.
In competitive markets where bidding at a higher overhead rate loses work, the alternative is cutting overhead costs until the real rate matches what the market will bear. Run the overhead calculator, find the largest discretionary overhead items, and work out which ones can be reduced without touching field operations. This is the harder lever, because cutting overhead takes decisions rather than a formula. It's also the right lever when the market won't absorb a higher bid rate.
Calculate the real overhead rate before choosing a lever, then decide whether to raise the bid rate, cut overhead, or both. Most clients do some of both: cut 2 or 3 overhead items that weren't producing value, and raise the bid rate by 3 to 4 points that the market will absorb without losing work. That combination typically closes the recovery shortfall within two quarters.
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, and no add-ons.
Pricing
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
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.
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 rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
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