HOW TO CALCULATE CONSTRUCTION OVERHEAD RATE, STEP BY STEP.
The construction overhead rate is total annual fixed costs divided by projected annual revenue. The fixed costs in the numerator are every cost that exists regardless of which projects are active: rent, vehicles, office staff, insurance, software, and owner compensation at market rate. The most common error is using last year's rate, missing owner compensation, or not including all vehicle costs.
SPM calculates the real rate at the start of every engagement, and most clients find their real rate is 3 to 8 points above the rate they have been using in bids. That means every job in the pipeline was priced against a number that was already wrong, and nothing in the monthly reporting points at it until closeout margins come in below estimate. Correcting it's arithmetic rather than strategy. The hard part is putting the corrected number into the bid template before the next bid goes out instead of at year end.
7 SECTIONS, 55 COST LINES, FORMULAS IN.
The file Josh uses at the start of an engagement, Chapter 3 of CONTROL. Every cost line is already written in, so the work is entering figures rather than working out what belongs where. Enter each cost once at the frequency you pay it and the rate calculates itself against both your target revenue and what you really booked.
No charge. It goes to a real address rather than sitting on a link, which is the only thing asked for. If you would rather have the answer in two minutes without the file, the calculator does the same arithmetic in your browser.
WHAT IT MEANS.
The construction overhead rate is total annual fixed costs divided by projected annual revenue.
The denominator does as much work as the numerator. Overhead spread across projected revenue produces a rate that only holds if the revenue holds, which is why a conservative projection beats an optimistic one on a growing business. A rate calculated off revenue you didn't end up doing is understated for the whole year, and every bid priced off it carries the error.
WHERE THE CALCULATION GOES WRONG.
The rate is last year's rate, or older
The most common error is carrying a rate that was calculated once and never touched again. Costs go up, headcount grows, and equipment gets added, and none of that reaches a number sitting in a bid template. A rate built three years ago and used every year since is almost certainly wrong today.
Owner compensation is missing from the numerator
When the owner takes draws rather than a defined salary, his compensation usually never enters the overhead calculation at all. It's the single most commonly missing line item, and leaving it out understates the rate by 4 to 7 points on most businesses in this revenue range. For an owner doing estimating, project management, and business development at $3M to $6M of revenue, market rate is $130,000 to $175,000.
Vehicles go in at the payment and nothing else
Most calculations pick up the monthly payment on a truck and stop there. The true annual cost of a vehicle is the payment plus insurance, registration, fuel at average utilization, and maintenance. Leaving the operating side out makes the fleet look cheap and pulls the whole rate down with it.
The bid rate and the spend rate are two different numbers
Most new clients come in with actual rates of 16 to 24 percent while their bids carry 10 to 14 percent. The distance between what gets bid and what gets spent is the primary source of the busy-but-not-making-money problem, and no report in the business points at it. The jobs perform in the field. The company still doesn't make money.
WHAT IT LOOKS LIKE IN DOLLARS.
Sum every overhead line item and divide by projected annual revenue. $420,000 in total annual overhead divided by $3,000,000 in projected revenue equals 0.14, which is a 14 percent overhead rate. That 14 percent is the rate that belongs in every bid the company sends out.
Bid gross margin minus the overhead rate equals net margin. At a 22 percent gross margin target and a 14 percent overhead rate, net margin is 8 percent. If that result is 3 percent or below, either the gross margin target is too low or the overhead rate is higher than the revenue can support.
Jones Maresca and Company's 2025 Performance Benchmarks put total indirect cost at 8 to 15 percent of revenue for construction as a whole, and CFMA's 2024 Construction Financial Benchmarker reports SG&A at 11.8 percent across all respondents. Neither of those is an SPM target, and /construction-overhead-rates-by-trade holds the rate by trade and revenue band. Most new clients come in with actual rates of 16 to 24 percent while understating them at 10 to 14 percent in bids, which puts the bid rate comfortably inside the published industry range and the real rate above the top of it. Most clients find their real rate is 3 to 8 points above the rate they had been using.
HOW TO BUILD THE RATE FROM CURRENT COSTS.
Pull the last 12 months of actual expenses and separate every cost that exists regardless of which projects are active and regardless of revenue level. That's overhead: office and yard rent or mortgage payment, utilities at every location, all vehicle and equipment payments and operating costs not allocated to specific projects, office staff salaries fully burdened, owner salary at market rate, general liability and umbrella insurance, software subscriptions, accounting and legal fees, business taxes and licenses, marketing and website costs, and telecommunications. Don't estimate any of it. Pull the real numbers out of the bank statements or the general ledger.
If the owner is taking draws rather than a defined salary, put market rate compensation in as a line item in the overhead calculation. For an owner doing estimating, project management, and business development at $3M to $6M of revenue, that's $130,000 to $175,000. This is the most commonly missing line item, and without it the overhead rate is understated by 4 to 7 points on most businesses in this revenue range.
Sum all overhead line items and divide by projected annual revenue, using the last 12 months actual if the business is stable or a conservative projection if revenue is growing hard. The result is the overhead rate as a decimal, and multiplying by 100 gives the percentage. $420,000 of annual overhead against $3,000,000 of projected revenue is 0.14, a 14 percent rate that belongs in every bid.
Check one asks whether every vehicle and machine is in at its true annual cost, meaning payment, insurance, registration, fuel at average utilization, and maintenance, rather than just the payment. Check two asks whether owner compensation is in at market rate, tested against W-2 wages plus guaranteed payments plus what replacing the owner's labor would cost. Check three asks whether bid gross margin minus this overhead rate produces a positive net margin, and whether that result clears 3 percent. If any of the three fails, the rate is understated.
The overhead rate gets recalculated at least annually, and immediately after any significant hire, equipment addition, or facility change. A rate calculated once three years ago and used every year since is almost certainly wrong. Costs go up, headcount grows, and equipment gets added, so the rate has to keep pace with the business it's describing.
THE OUTPUTS, NAMED.
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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