HOW MUCH SHOULD A CONSTRUCTION OWNER PAY THEMSELVES SALARY, DRAWS, AND THE OVERHEAD RATE.
The most common answer to this question is whatever the business can afford after everything else is paid. That's the wrong framework. Owner compensation should be treated as a defined cost of running the business: a fixed salary in the overhead rate that every bid recovers, plus draws from net profit that represent return on equity. When owner compensation isn't in the overhead rate, every bid is underpriced by the cost of the owner's labor.
The two halves do different jobs, which is why splitting them fixes two problems at once. The salary is a cost, so it belongs in the overhead rate and gets recovered on every job you bid, whether the year is good or bad. The draw is a distribution of profit, so it's variable and comes out after everything else is covered. Owners who take only draws end up with a bid rate that understates the cost of running the company and a personal income that swings with the worst month of the year. Neither of those is necessary.
WHAT IT MEANS.
Owner compensation is a defined cost of running the business, made up of a fixed salary that sits inside the overhead rate and draws taken from net profit as a return on equity.
Net profit before owner compensation isn't a meaningful measure of business profitability. Until a market rate wage for the owner's own labor is inside the costs, the profit figure includes the value of work somebody is doing for free.
WHERE OWNER PAY BREAKS THE NUMBERS.
Owner salary isn't in the overhead rate
When the owner takes draws instead of a defined salary, the overhead rate is missing the largest single overhead line in the business. A $3M subcontractor whose owner is doing project management, estimating, business development, and financial management is worth $150,000 to $200,000 in compensation at market rate for those functions. If the overhead rate doesn't include that number, every bid is understating overhead by 5 to 7 percent of revenue, and it has been for as long as the rate has been in use.
The profit number includes free labor
Net profit before owner compensation isn't a meaningful measure of how profitable the business is. A business that generates $400,000 after paying a $40,000 draw isn't generating $400,000 in surplus. If the owner's market rate is $200,000, it's generating $200,000. Every decision made off the larger number, from bidding to hiring to buying equipment, is being made on a figure that overstates what the business earns.
The owner is financing the business with deferred pay
If you aren't paying yourself market rate and the business looks profitable, you're subsidizing it out of compensation you never took. That's a real loan, it just doesn't appear anywhere on the balance sheet. It also hides the problem from you, because the P&L reads fine right up until you try to hire somebody to do what you've been doing for nothing.
WHAT IT LOOKS LIKE IN DOLLARS.
A $1M to $2M subcontractor owner operator should be at $80,000 to $120,000. A $2M to $5M owner operator managing 5 to 15 crew should be at $120,000 to $160,000. A $5M to $10M owner managing a PM team should be at $150,000 to $200,000. At $12M in SPM's target financial model the figure is a $180,000 fixed salary plus draws.
A $180,000 salary sits in overhead and draws come out of net profit on top of it. At SPM's 10 percent net profit floor before taxes, on $12M in revenue, that's $1,200,000 in net profit before draws. At the 6.3 percent net income before taxes CFMA's 2024 Construction Financial Benchmarker reports across all respondents, the same $12M produces $756,000, so holding the floor is worth $444,000 a year to the owner on identical revenue. The salary is recovered through the bid rate on every job, and the $1,200,000 is what the equity earned.
On a $3M subcontractor, an owner worth $150,000 to $200,000 who is missing from the overhead rate means every bid understates overhead by 5 to 7 percent of revenue. That difference decides whether a bid carries the business or borrows from it. Correcting the rate is usually the largest single adjustment a subcontractor's overhead calculation needs.
THREE STEPS THAT FIX THE OVERHEAD RATE AND THE PERSONAL FINANCE QUESTION AT ONCE.
Base it on what it would cost to hire somebody to do what you do, across all of the functions you cover. That number goes into the overhead rate as a fixed line, which means it's included in every bid and paid every month regardless of how the business performed. It's your baseline compensation for running the company rather than a reward for a good quarter.
Draws are distributions of profit, so they're a return on equity rather than payment for labor. They're variable, they get distributed when the cash position and the tax planning support it, and they never belong in the overhead rate. Keeping the two separate is what lets you tell whether a good year came from the business or from underpaying yourself.
The overhead rate that was understating owner compensation gets corrected, and the bid rate updates with it. Future projects then price the cost of your involvement correctly, which is the whole point of the exercise. Existing contracts are unaffected, so the correction works its way through as the backlog turns over.
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.
| 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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