WHY YOUR CONSTRUCTION OVERHEAD RATE KEEPS CHANGING.
An overhead rate that changes significantly from year to year is telling you something. Either revenue is fluctuating while fixed costs stay constant, which is normal, or fixed costs are creeping up faster than revenue, which is a structural problem. In practice there are four causes: revenue movement against flat fixed costs, incremental fixed cost creep nobody recalculated for, owner salary that changed or was never included, and a rate calculated a different way each year.
The number that hurts is the rate you're still bidding with. Overhead is fixed costs divided by revenue, so a 20 percent revenue drop raises the rate 25 percent without a single new expense. Meanwhile a hire in January, a software subscription in March, and a truck in July each add cost that no bid rate was updated for. By December you're pricing work with a number that was right eleven months ago. Recalculating once a year catches most of it, and recalculating when a big item changes catches the rest.
WHAT IT MEANS.
Overhead rate is fixed costs divided by revenue.
WHY THE RATE WILL NOT SIT STILL.
Revenue fluctuates but fixed costs don't
Overhead rate is fixed costs divided by revenue. When revenue drops 20 percent and fixed costs stay constant, the overhead rate increases by 25 percent automatically. A contractor doing $4M one year and $3.2M the next with the same overhead structure went from a 14 percent rate to 17.5 percent without changing anything about their cost structure.
Fixed cost creep from new hires, software, and vehicles
Fixed costs grow incrementally. A new hire in January, a software subscription in March, a new company vehicle in July: each one adds to overhead and none of them triggered a bid rate recalculation. By December, overhead has grown by $85,000 and every bid submitted since January was underpriced by the corresponding percentage of that creep.
Owner salary changed, or was never in there
Owner salary is the single most commonly missing or misrepresented overhead line item. When the owner takes draws instead of a defined salary, the overhead rate is understated by the difference between the draw amount and market rate compensation, which runs $120K to $180K for most $2M to $8M owner operators. The bid rate inherits that understatement on every job it prices.
The rate is calculated a different way each year
If the overhead rate is calculated differently each year, with different line items included or excluded and workers comp in one year and out the next, the rate will fluctuate without any underlying change in the business. That movement is a measurement problem rather than a cost problem. Fixing it means writing the method down once and using the same method every year.
WHAT IT LOOKS LIKE IN DOLLARS.
A contractor doing $4M one year and $3.2M the next, with the same overhead structure, went from a 14 percent overhead rate to 17.5 percent. Nothing about the cost structure changed. A 20 percent revenue drop against constant fixed costs raises the rate by 25 percent on its own.
A hire in January, a subscription in March, and a vehicle in July add up to $85,000 of new overhead by December. Every bid submitted since January was underpriced by the corresponding percentage of that creep. None of it was visible in a single month, because each piece looked small on its own.
Market rate owner compensation for most $2M to $8M owner operators runs $120K to $180K. When the owner takes draws instead, the overhead rate is understated by the difference between the draw and that market rate. The bid rate is then wrong by the same amount on every job.
HOW THE RATE STAYS PUT.
The rate gets recalculated formally once a year. It also gets recalculated any time a significant overhead item changes: a new hire, a lease, a major software change, or an office move. That's what keeps the bid rate current instead of eleven months stale.
The line items included in the calculation get decided once and documented, so workers comp is either in the rate every year or out of it every year. A rate that moves for measurement reasons can't be trusted at bid time. Consistency is what makes a year over year comparison mean something.
The rate is tracked monthly against the trailing twelve month actual and against the bid rate being applied to current estimates. When those two numbers separate, the bid rate gets corrected before the next round of bids goes out. Seeing both side by side every month is what makes the correction happen on time.
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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