Winning Too Many Construction Bids Overhead Rate

TL;DR: Winning more than 35% of competitive construction bids almost always means the overhead rate in bids is too low. Every job won is underpriced by the gap between the bid rate and the real overhead rate. The fix: pull SG&A from the last 12 months, divide by revenue, compare to what's in the bid model, update immediately. A 3-point correction on $5M in revenue is $150,000 per year in recovered margin. The work is the same. The cash changes.

What's Actually Happening

Why a High Win Rate Is a Warning Sign

A bid is an auction. When you consistently win more than your fair share, your price is consistently lower than your competitors'. In most cases, that's not because you're more efficient — it's because your overhead rate is lower than your actual overhead. You're charging less than it costs to run the business. The jobs get done. The business stays busy. The bank account stays thin.

The Overhead Rate Was Set Once and Never Updated

You set your overhead rate when you started bidding. Since then you hired a PM, bought equipment, added insurance, and moved into a larger shop. The overhead grew. The rate in bids didn't. Every bid since that last hire is underpriced by the difference — silently, on every single job.

Owner Compensation Is Missing or Understated

The single most common overhead understatement: the owner books a nominal salary of $60,000–$80,000 to minimize payroll taxes and takes draws when cash allows. The overhead rate is calculated on $70,000. The real value of the owner's role at $5M in revenue is $140,000–$170,000. The bid model is underfunded by $70,000–$100,000 per year on every bid.

Equipment Depreciation Is Not in Overhead

Equipment depreciates whether it's working or sitting. An excavator with $4,200/month in ownership cost needs to be covered by the overhead rate — or by job-level equipment cost codes. If it's booked to a balance sheet account and never hits the P&L, the overhead rate is understated by exactly that amount. Every bid misses it.

The Fix

How to Correct Your Overhead Rate Right Now

This is a 20-minute fix. You don't need a CFO to do the math. You need the last 12 months of P&L and a calculator. The CFO part is building the system so it stays correct going forward.

Step 1: Pull SG&A from the last 12 months of P&L. Everything that isn't a direct job cost — officer compensation, admin salaries, rent, insurance, vehicle fleet, equipment depreciation, professional services, technology. If something is in COGS that shouldn't be there (owner salary in direct labor, personal vehicle in equipment), move it to SG&A for this calculation.

Step 2: Add market-rate owner compensation if it's missing. If you're paying yourself $70,000 and the market rate for your role at your revenue level is $150,000, add $80,000 to SG&A before calculating the rate. The overhead rate needs to reflect what the business actually costs to run — not what you've chosen to pay yourself.

Step 3: Divide corrected SG&A by revenue. That percentage is your real overhead rate. Compare it to what's in your bid model. Use the overhead rate calculator to run the numbers if you want a structured format.

Step 4: Update the bid model immediately — not next quarter. The gap has been running for however long since the last recalculation. Every bid submitted at the wrong rate is a job underpriced. The correction applies to every new bid going forward starting now.

Step 5: Recalculate after every significant hire or operational change. Every PM, estimator, or admin hire adds $60,000–$100,000 in SG&A. The overhead rate needs to be updated at the time of hire — not 18 months later when you notice the margin compression. SPM recalculates at engagement start and reviews monthly.

Revenue	3pt Overhead Gap	Annual Cost	5-Year Cost
$2M	3%	$60,000/yr	$300,000
$3M	3%	$90,000/yr	$450,000
$5M	3%	$150,000/yr	$750,000
$8M	3%	$240,000/yr	$1,200,000
$10M	3%	$300,000/yr	$1,500,000

FAQ

Frequently Asked Questions

If I'm winning too many construction bids, what does that mean?

It almost always means your overhead rate is too low. In competitive bidding, you win when your price is lower than your competitors' prices. If you're consistently winning more than 35% of competitive bids, your price is consistently lower — and the most common reason is that your overhead rate doesn't capture your actual overhead costs. You're subsidizing every job you win with your own net income.

How do I fix a bid win rate that's too high?

Three steps: First, calculate your real overhead rate — pull SG&A from the last 12 months of P&L, divide by revenue. Include full owner compensation at market rate, equipment depreciation, and all vehicle costs. Second, compare to what's in your bid model. If the real rate is higher, update the bid model immediately. Third, apply the corrected rate to every new bid going forward. The jobs you've already won are priced — you can't change those. Every future bid should reflect the corrected rate.

What should my overhead rate be as a construction subcontractor?

Civil and grading contractors typically run 12–16% overhead. Concrete contractors 11–15%. Electrical contractors 14–18%. SWPPP/erosion control 12–15%. Masonry 12–15%. Framing and drywall 11–14%. The right overhead rate for your business is SG&A divided by revenue — not an industry benchmark. The benchmark tells you if you're in range. Your actual P&L tells you the number.

Can winning too many bids actually hurt a construction company?

Yes — directly. Winning too many bids means every job is underpriced. Underpriced jobs produce less gross margin than needed to cover overhead. The business works harder, takes on more jobs, and the overhead gap compounds. The contractor who wins 50% of bids at a 3-point overhead gap is generating $150,000 per year less gross profit than they should on $5M in revenue — and wondering why cash is always tight despite being busy.

How often should I recalculate my construction overhead rate?

After every significant operational change — any new hire who adds to SG&A, equipment purchases, rent changes, or insurance renewals. At minimum, recalculate annually against the full-year P&L. Most contractors set their overhead rate once and don't touch it until a CFO tells them it's wrong. At SPM, the overhead rate is recalculated at engagement start and reviewed monthly as part of the standard close.

Winning Too Many BidsIs Costing You Money.

Why a High Win Rate Is a Warning Sign

The Overhead Rate Was Set Once and Never Updated

Owner Compensation Is Missing or Understated

Equipment Depreciation Is Not in Overhead

How to Correct Your Overhead Rate Right Now

What a 3-Point Overhead Gap Costs Over Time

Frequently Asked Questions

Ready to Find the Gap?

Winning Too Many Bids
Is Costing You Money.