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 overhead rate at every engagement start. Most clients find their real rate is 3 to 8 points above the rate they've been using in bids, which means every job has been priced against a number that was already wrong.
THE SPM OVERHEAD CALCULATOR TEMPLATE. EVERY COST CATEGORY. FORMULAS BUILT IN.
The exact spreadsheet SPM uses to calculate the real overhead rate at engagement start. Seven cost categories, weekly and monthly input columns, and formulas that auto-calculate your overhead percentage against both your target and actual annual revenue. Works in Excel and Google Sheets.
| COST CATEGORY | WEEKLY | MONTHLY |
|---|---|---|
| OFFICE REQUIREMENTS | ||
| Office Rent, Lease, or Mortgage | - | $____ |
| Electric, Water, Internet, Telecom | - | $____ |
| Mobile Phones, Security, Supplies | - | $____ |
| Subtotal | - | $____ |
| SOFTWARE SUBSCRIPTIONS | ||
| Procore, Fieldwire, Accounting, Other | - | $____ |
| ADMINISTRATIVE EXPENSES | ||
| Legal, Payroll, IT, Marketing, Training | $____ | $____ |
| Employee Benefits and Payroll Taxes | $____ | - |
| OWNED EQUIPMENT, IDLE AND MAINTENANCE | ||
| Fuel, Routine Maintenance, Registration | $____ | $____ |
| INSURANCE | ||
| GL, Workers Comp, Property, Vehicle | - | $____ |
| NON-DIRECT JOB EMPLOYEES, FULLY BURDENED | ||
| Estimating, PM, Safety, Accounting, BD | $____ | - |
| Owner Compensation at Market Rate | $____ | - |
| MISC | ||
| Union Dues, Business Taxes | - | $____ |
| GRAND TOTAL (WEEKLY x 52 + MONTHLY x 12) | $____ | $____ |
| OVERHEAD % = TOTAL / ANNUAL REVENUE | TARGET | ACTUAL |
TEMPLATE INCLUDES FORMULAS. ENTER YOUR NUMBERS. OVERHEAD % CALCULATES AUTOMATICALLY.
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This calculation is one step of eight in CONTROL: The Construction Financial Operating System, Josh's book on the full financial system behind CFOS. If you want the other seven steps, see the book and the CFOS process at runoncfos.com →
HOW TO CALCULATE YOUR REAL OVERHEAD RATE FROM CURRENT COSTS.
List Every Fixed Cost Line Item
Pull the last 12 months of actual expenses. Separate every cost that exists regardless of which projects are active and regardless of revenue level. This is overhead. Examples: 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, telecommunications. Do not estimate. Pull the actual numbers from your bank statements or general ledger.
Add Owner Compensation at Market Rate
If the owner is taking draws rather than a defined salary, include market-rate compensation as a line item in the overhead calculation. For an owner doing estimating, project management, and business development at $3M to $6M revenue: $130,000 to $175,000. This is the most commonly missing line item. Without it, the overhead rate is understated by 4 to 7 points on most businesses in this revenue range.
Divide by Projected Annual Revenue
Sum all overhead line items. Divide by projected annual revenue, using last 12 months actual if the business is stable, or a conservative projection if revenue is growing significantly. The result is the overhead rate as a decimal. Multiply by 100 for the percentage. Example: $420,000 in total annual overhead divided by $3,000,000 in projected revenue equals 0.14, or a 14% overhead rate. That 14% is the rate that belongs in every bid.
THREE CHECKS THAT CONFIRM YOUR CALCULATION IS RIGHT.
The annual update rule: The overhead rate must be 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. Equipment gets added. The overhead rate needs to keep pace.
Managed 150 or more projects worth more than $2.1 billion combined, with individual jobs from $50,000 to $300 million, including data centers, military bases, hospitals, and high-rises. About Josh → | LinkedIn →
Keeps the system running day to day: job costing, WIP, monthly financial reviews, and the follow-through between calls.