THE RATE LOOKS TERRIBLE. HOW MUCH IS REALLY OVERHEAD?
Start by working out whether your rate is high at all. Healthy is nine to thirteen percent of revenue. Most subcontractors run twenty five to forty two, which includes a lot of companies smaller than yours, so a rate in the twenties is common without being good. The ten percent figure that circulates in the trades is a myth and pricing against it's how contractors under-recover for years. Then work out whether what you're looking at is overhead. Labor burden, equipment, and small tools charged to the company all sit in overhead and belong on a job, and every dollar misfiled that way raises your rate and overstates your gross margin by the same amount. Cutting an overhead rate built out of production cost removes capacity you need and leaves the real problem where it was.
The reason this diagnosis comes first is that the two conditions have opposite cures. A heavy office is fixed by removing cost, which is painful and finite. Misfiled direct cost is fixed by moving cost, which changes no spending at all and moves several points off the rate in one close. Contractors who skip the triage almost always cut, because cutting feels decisive, and six months later the rate has drifted back up because the cause was never in the office.
WHAT IT MEANS.
A construction overhead rate is everything it costs to keep the business open when you're not building, divided by revenue for the same period, and a rate that looks alarming is usually one of two different problems: a genuinely heavy office, or direct job cost filed above the line, which inflates the rate and flatters every gross margin at the same time.
Overhead is everything the company needs to win work, manage it and get paid for it, and none of it's chargeable to a single project: rent, utilities, the software subscriptions, outsourced IT and legal, the estimating team, the safety manager, in-house accounting, the owner's own compensation. What makes the accounting hard is that several real costs look like overhead and belong to production, and the ones that hurt most are the biggest: the burden on field wages, the fleet when it's idle against the fleet when it's on a job, and the project manager who runs one project at a time.
Where a role can go either way, the test is whether the person serves one job or the whole company. A project manager dedicated to a single project is job cost. One floating across four is overhead. Getting the borderline roles wrong in either direction distorts both numbers at once.
FOUR CAUSES, AND TWO OF THEM AREN'T SPENDING.
Labor burden never reached the job
Field wages post to the job and the payroll taxes, workers' comp, general liability, holiday and every fringe post to the company, because they come in as monthly bills. That's eighteen to forty percent of every field hour sitting in your overhead rate while the hours it belongs to sit in job cost. This single misfiling is usually the largest cause of a frightening percentage, and correcting it moves cost onto jobs, lowers the rate, and lowers every gross margin you have been reporting. All three of those are the report becoming honest.
The fleet lives above the line
Equipment ownership, maintenance and fuel get charged to the company and no job is ever charged for using a machine. Excavation and grading work then looks stronger than it is, and the overhead rate carries a cost that production caused. Idle time and general upkeep genuinely are overhead, which is what makes this one confusing: the split's between a machine sitting in the yard and a machine assigned to a project, and it needs an hourly rate to make the second half chargeable at all.
The rate belongs to a smaller company
Most contractors calculate an overhead rate once, usually because a bid needed one, and then bid against it while the office grows. If the rate was set with four people in the office and there are nine now, every bid since has been under-recovering the difference. The shortfall never appears as a loss on any report. It appears as a busy year that finished no better than the last one, which is why nobody goes looking for it in the overhead rate.
The office is genuinely heavy
Sometimes the number is real. Seven sections carry it: office requirements, software subscriptions, administrative expenses, owned equipment idle time and normal maintenance, insurance, non-direct job employees, and the miscellaneous items. Non-direct employees is almost always the largest of the seven by a distance, so a real overhead problem is usually a headcount question, and it deserves to be answered as one after the first three causes have been ruled out and not before.
WHAT IT LOOKS LIKE IN DOLLARS.
Total every cost that isn't chargeable to a job for the trailing twelve months, divided by revenue for the same twelve. Compare it to nine to thirteen percent healthy. If you come out in the twenties you're with most subcontractors, which is a population that includes companies much smaller than yours, so it's a reason to look and not yet a reason to cut.
Take the total of payroll taxes, workers' comp, general liability and every field fringe for the year. Divide by revenue. That's the share of your overhead rate that belongs on jobs. On a labor-heavy trade this one figure is often four to eight points of the rate on its own.
Search your job cost for an equipment charge. If none exists, every machine hour the company owns has been financed by overhead, and jobs that used the fleet were subsidised by jobs that didn't. The equipment workbook on this site prices a whole fleet in an afternoon.
List every project manager, superintendent and coordinator and mark each one dedicated or floating. Dedicated is job cost. Floating is overhead. Contractors doing this the first time usually find two or three people on the wrong side, and each one moves the rate.
MOVE COST BEFORE YOU CUT IT, IN THIS ORDER.
One fully burdened labor rate per class, one hourly rate per machine, and the dedicated project staff coded to their projects. No spending changes and the rate falls, often by several points in a single close. Your gross margins fall at the same time, which is the point: they were never as good as reported, and now the bid you build carries what the work really costs.
Not annually, and never four months after year end when the tax return is finished. A rolling twelve month rate recomputed with each close is what keeps a bid priced against the company you're running today. Books closed and bank reconciliations done by the tenth make that routine; a close that drifts into the following month leaves you bidding on a quarter-old rate.
With production cost out of the number, whatever remains is a real office and can be judged as one. Go through the seven sections and treat non-direct employees last and most carefully, because that's where the money is and where a cut does the most damage if the first two steps were skipped. Backlog already sold at the old rate needs pricing separately, because those jobs were bid against a number you now know was wrong.
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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