July 10, 2026 · 7 min read · By Andrew Bernardo

How to Set Your Contractor Overhead Percentage (Without Guessing)

Most contractors I talk to guess their overhead percentage. And most of them are wrong by 30 to 50 percent. You're probably leaving money on the table right now because you forgot a category or two. Here's the actual math to figure out your contractor overhead percentage, what's normal for small residential crews, and how to spot the stuff you're missing.

The Basic Construction Overhead Calculation

Add up everything you spent on overhead in the last 12 months. Divide that number by your total revenue for the same 12 months. That's your overhead percentage.

Overhead is anything you pay whether you have jobs running or not. Rent on your shop. Business insurance (not the job-specific COI you pull for a permit). Your office person's salary. Accounting fees. The loan payment on your truck. Your phone bill. Software subscriptions. Marketing. Business licenses.

Most residential construction businesses run between 8 and 18 percent of revenue. If you're below 8 percent, you probably forgot a category. If you're above 18 percent, you either just started or you're carrying costs that don't match your revenue yet.

What Actually Counts as Overhead (The Stuff You Forget)

Here's the list I use when I'm doing my own profit per job calculations. Go through it line by line and pull the actual numbers from your bank account or QuickBooks.

The ones I see people skip most often are the truck payment (because it feels like a job cost), software subscriptions (because they're small), and marketing (because it's lumpy). Add those back in and your percentage usually jumps 2 to 4 points.

What Does NOT Count as Overhead

Do not include job-specific costs. Materials you bought for a specific project. Subcontractor invoices. Permit fees tied to one job. Job-specific insurance certificates. Porta potty rental for a site. Those are direct costs, and they go into your job costing, not your overhead calculation.

Labor is the tricky one. If a guy on your crew works on jobs 90 percent of the time, his wages are a direct cost. If your project manager splits time between active jobs and bidding new work, I'd call 100 percent of his wage overhead because he's running the business, not swinging a hammer. There's no perfect rule here. Just be consistent year over year.

Owner salary is another gray area. If you're in the field full time, I'd count your wage as a job cost. If you're running estimates and managing subs and answering the phone, count it as overhead. If you're doing both, split it. The goal is honest numbers, not tax strategy.

How to Pull the Numbers Fast

If you use QuickBooks, run a Profit and Loss report for the last 12 months. Look at your expense categories and tag anything that happens whether you have jobs or not. Add those up. Your total revenue is at the top of the same report. Divide expenses by revenue.

If you don't have clean books, this is going to take a Saturday morning with your bank statements and a spreadsheet. Sort transactions by vendor. Anything recurring that isn't tied to one job goes in the overhead pile. It's tedious but you only have to do it once to get a baseline.

I built a tool called Workhand that tracks cost per job and shows you profit in real time, but the overhead percentage calculation still starts with this manual audit. You need to know your baseline before any software can help you stay on top of it. Once you have your number, you can use profit tracking tools to make sure your estimates actually cover overhead plus margin.

What Your Contractor Overhead Rate Should Be

For small residential contractors, 8 to 18 percent is the normal range. Pool builders and remodelers tend to land around 12 to 15 percent because the jobs are longer and you're carrying office staff to manage selections and permitting. HVAC and electrical crews that do a lot of service work often run 10 to 12 percent because job turnover is faster and marketing costs are lower.

If you're a solo operator with no office and you run everything from your phone, you might be down around 8 to 10 percent. That's fine as long as you're accounting for your own time somewhere. If you're running a crew of five or more with a shop and a truck fleet, you're probably closer to 15 to 18 percent.

The number itself doesn't matter as much as knowing what it is. Once you know your small contractor overhead percentage, you can price jobs correctly. If your overhead is 15 percent and you want a 10 percent net profit, you need to mark up your direct costs by at least 25 percent to break even. Most contractors skip this math and wonder why they're busy but broke.

How to Adjust When Your Overhead Percentage Is Off

If your percentage is higher than you expected, you have two levers. Cut overhead costs or grow revenue faster than overhead grows. Cutting costs is faster but there's a floor. You can't run a business with no insurance and no phone line.

Growing revenue is the better long-term move. If you're at 18 percent overhead on 500k in revenue, that's 90k in fixed costs. If you grow to 750k in revenue and overhead only grows to 100k (because rent and insurance don't double), you're down to 13 percent. That's how you get profitable without becoming a cheapskate.

The trap is adding overhead faster than revenue. New truck, new software, new office person. All of those are fine if your revenue is growing to match. If you're adding 20k in overhead cost but revenue is flat, your percentage goes up and your margins disappear. Track it every quarter so you catch it early.

Track profit per job without a spreadsheet

Workhand shows you cost vs. budget in real time so you know if a job is profitable before you close it out.

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Frequently asked questions

What is a good overhead percentage for a small contractor?

Most small residential contractors run between 8 and 18 percent of revenue. Pool builders and remodelers are usually 12 to 15 percent. HVAC and electrical service companies often land around 10 to 12 percent.

How do I calculate my contractor overhead rate?

Add up all your overhead expenses for the last 12 months (rent, insurance, office staff, software, marketing, truck payments, phone bills). Divide that total by your revenue for the same 12 months. The result is your overhead percentage.

What counts as overhead vs. direct job costs?

Overhead is anything you pay whether you have jobs running or not: rent, general insurance, office staff, software, marketing, and vehicle payments. Direct costs are tied to specific jobs: materials, subcontractors, permits, and job-specific insurance certificates.

Should I include my own salary in overhead?

If you're in the field full time doing labor, count your wage as a job cost. If you're running the office, managing bids, and answering the phone, count it as overhead. If you do both, split it.

Why is my overhead percentage higher than I expected?

You probably forgot categories like vehicle payments, software subscriptions, or marketing costs. Go back through your bank statements for the last 12 months and tag every recurring expense that isn't tied to a specific job.

How often should I recalculate my overhead percentage?

Once a quarter is enough for most small contractors. Your overhead percentage will drift as you add staff or grow revenue, so checking it every 90 days keeps you from getting surprised at tax time.

What if my overhead is above 18 percent?

You either just started and revenue hasn't caught up to fixed costs yet, or you're carrying overhead that doesn't match your current volume. Look for costs you can cut or focus on growing revenue faster than overhead grows.

How does overhead percentage affect my pricing?

Once you know your overhead percentage, you can price jobs to cover it. If overhead is 15 percent and you want 10 percent profit, you need at least a 25 percent markup on direct costs to break even after overhead.

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