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TL;DR: A construction subcontractor owner doing $3M-$8M in revenue should compensate themselves at $120,000-$180,000 per year in total compensation booked to SG&A. Below $100,000 at this revenue level understates overhead and underprices every bid.

Owner Compensation

How Much Should a Construction
Owner Pay Themselves?

Most construction subcontractor owners underpay themselves. That sounds like a personal problem. It is actually a bidding problem costing you on every job.

Published: May 2026 · Updated: May 2026

The Problem

What You Are Dealing With

Low Salary to Minimize Payroll Taxes

Many owners run a nominal salary of $60,000-$80,000 to minimize payroll taxes and take the rest as distributions. The overhead rate is calculated on $70,000. The real value of the owner's role at $5M is $140,000-$160,000. Every bid is underfunded by the gap.

Distributions Come From Net Profit Not Overhead

When an owner takes $200,000 in distributions but only $70,000 is in SG&A the remaining $130,000 comes from net income. The business looks profitable until you realize the owner is depleting cash reserves to fund their own income.

Owner Comp Not Updated After Revenue Growth

An owner who set $80,000 in compensation at $1.5M and has not updated it at $5M is significantly understating overhead. At $5M the market rate is $150,000-$170,000. The overhead rate that was correct at $1.5M is now 2-3 points too low.

The Fix

How to Fix It

Set market-rate compensation. The market rate for the owner role at your revenue level is what you would pay a qualified person to do what you do. At $3M-$8M that is typically $120,000-$180,000. That amount goes in SG&A as officer compensation consistently every month.

Book it consistently - not only when cash allows. Owner compensation should be a fixed monthly SG&A expense. Consistent monthly booking is what makes the overhead rate calculation meaningful.

Update the overhead rate immediately after correcting comp. Once market-rate compensation is in SG&A recalculate the overhead rate: SG&A divided by revenue. Compare to what is in bids. Update the bid model immediately.

Distributions are what comes after overhead is covered. The correct sequence: the business covers all costs including owner compensation at market rate, produces net income, then the owner takes distributions from net income.

Client Outcome

Real Numbers Real Results

Electrical Contractor - $2.3M Revenue

This contractor had officer compensation of $52,000 at $2.3M in revenue - significantly below market rate. Overhead rate was understated by approximately 3 points.

$365,000 AR recovered

In the first 30 days.

Overhead corrected and margin improved

$23,000 in employee bonuses paid after the financial system was corrected.

FAQ

Frequently Asked Questions

How much should a construction subcontractor owner pay themselves?

At $1M-$2M revenue: $90,000-$120,000. At $2M-$4M: $110,000-$150,000. At $4M-$8M: $130,000-$180,000. At $8M-$12M: $150,000-$200,000. These are total compensation figures. Distributions from net profit are separate.

Should owner draws count as overhead in a construction company?

No. Owner draws are distributions of net profit not an operating expense. Owner compensation belongs in SG&A. Draws happen after net income is generated.

What happens if I set a higher owner salary?

The overhead rate increases which means bids increase which means gross margin on each job is higher. Short-term the business may win fewer bids. Long-term the business is profitable at sustainable pricing.

How does owner compensation affect construction company valuation?

A buyer normalizes owner compensation to market rate before calculating EBITDA. If the owner is underpaid the buyer adjusts EBITDA downward which reduces the valuation.

Josh Luebker

Fractional CFO · The Construction CFO

Former commercial construction project manager and master electrician. Managed 150+ projects totaling $300M+. Now fractional CFO for commercial subcontractors doing $1M–$12M through Sulphur Prairie Management. About Josh → | LinkedIn →

How Much Should a ConstructionOwner Pay Themselves?