How do you calculate overhead rate in construction?

Divide your total annual overhead by an allocation base for the same period. As a share of revenue: overhead ÷ revenue. As a markup on direct cost: overhead ÷ total direct cost. For example, $65,700 of overhead on $286,000 of revenue is a 23% overhead rate, or about 32% expressed as a markup on $204,100 of direct cost.

What is a typical overhead rate for a contractor?

For small remodelers, overhead commonly runs 15–25% of revenue; the NAHB average for remodelers is about 23.6%. Yours depends on your office, vehicles, insurance, admin, owner pay, and how much revenue you spread them across.

How do you apply overhead to a job?

Once you know your overhead rate, make sure each job's price covers its share — either by adding the overhead percentage to the job's cost, or by setting a target margin high enough that it covers overhead plus profit. Pricing on margin handles both at once.

How to Calculate Your Overhead Rate (Construction)

Overhead is the cost of being in business at all — the office, the truck, insurance, admin, your own pay — and no single job carries it on its own. To make sure every job pays its share, you need one number: your overhead rate. It's simple to calculate, and it changes how you price.

The formula

Your overhead rate is total overhead divided by an allocation base for the same period:

Overhead rate = total overhead ÷ allocation base

The base is usually one of two things, and it's worth knowing both:

As a share of revenue — overhead ÷ revenue. The most common way to express it, and easy to compare to benchmarks.
As a markup on direct cost — overhead ÷ total direct cost. Useful when you want to add overhead onto a job's cost before applying profit.

A worked example

Say your annual overhead is $65,700, on $286,000 of revenue and $204,100 of direct cost:

The same overhead, two bases
Basis	Rate
As a share of revenue ($65,700 ÷ $286,000)	~23%
As a markup on direct cost ($65,700 ÷ $204,100)	~32%

Both describe the same overhead — they just answer different questions. The ~23% tells you overhead eats roughly a quarter of every revenue dollar (right in line with the 23.6% remodeler average). The ~32% tells you that to cover overhead you'd need to add about a third on top of a job's direct cost, before any profit.

How to build it into a bid

Knowing the rate is only useful if every job carries its share. Two ways to make that happen: add your overhead percentage onto the job's cost, or set a target margin high enough to cover overhead plus profit. Pricing on margin handles both in one step — which is why a ~30% gross margin, after ~23% overhead, leaves the ~6% net that's typical for the trade.

See overhead, margin, and break-even together

The BidSolid Contractor Business Dashboard totals your overhead, rolls up your jobs, and shows your overhead as a share of revenue alongside your gross margin, net margin, and break-even — the whole picture on one screen. One-time $199.

See the dashboard — $199

Frequently asked

How do you calculate overhead rate?

Total overhead ÷ an allocation base. As a share of revenue: overhead ÷ revenue. As a markup on cost: overhead ÷ direct cost.

What's a typical rate?

15–25% of revenue for small remodelers; the NAHB average is about 23.6%.

How do you apply it to a job?

Add the overhead percentage to the job's cost, or set a margin high enough to cover overhead plus profit — pricing on margin does both.

Source: operating expenses 23.6% of revenue (FY2024) — NAHB Remodelers' Cost of Doing Business Study, 2026 edition. Dollar figures are illustrative.