How to Calculate Overhead and Profit in Construction Bids (2026 Guide)

By USA Estimating Solutions · November 5, 2026

Quick Takeaways

• Overhead is what it costs to run your company; profit is what's left for you after every cost is paid. They're separate lines, and both belong in every bid.
• Your overhead rate comes from your own books: annual company overhead divided by the direct costs you expect to complete in a year.
• Markup and margin aren't the same. A 20% markup gives you only a 16.7% margin.
• "10 and 10" means 10% overhead plus 10% profit. Applied one on top of the other, it adds 21%, not 20%.
• The average contractor nets about 6.3% before tax, so small O&P errors can erase a year's profit.

Most contractors can price a wall or a slab down to the last stud. Where bids quietly go wrong is the line at the bottom: overhead and profit. Pick a number by habit, apply it to the wrong base, or confuse markup with margin, and a job that looked fine on paper leaves you with almost nothing.

This guide shows you how to calculate overhead and profit in construction from your own numbers. You'll learn how to find your overhead rate, why markup and margin give different results, how a real bid builds from direct cost to final price, and what "10 and 10" means on insurance work.

USA Estimating Solutions prices residential, commercial and insurance work for contractors across the U.S., and O&P is a line we build into estimates every week.

What Overhead and Profit Mean in Construction

Overhead and profit (O&P) are the costs and earnings a contractor adds on top of the direct cost of the work. Overhead keeps the business running. Profit is the return that makes the risk worth taking.

Job overhead vs. company overhead

Estimators split overhead into two kinds, and mixing them up is a common source of double counting.

• Job overhead (often called general conditions) is tied to one project: the superintendent, temporary power, dumpsters, site trailer, permits and job-specific insurance. Price these as line items in the estimate, based on the schedule.
• Company overhead (also called general and administrative or G&A) exists whether or not you win the job: office rent, accounting, estimating salaries, software, vehicles and marketing. This is what your overhead percentage recovers.

What counts as profit

Profit is what remains after every direct cost, job overhead and company overhead is paid. It funds growth, equipment and the cushion you'll need when a job goes sideways. If your "profit" line is really covering office costs, you're not making a profit; you're breaking even.

How to Calculate Your Overhead Rate

Your overhead rate is your annual company overhead divided by the direct job costs you expect to complete in the same year. It tells you how much to add to each dollar of work so the office gets paid for.

Overhead rate = Annual company overhead ÷ Annual direct job costs

Say your company overhead last year was $300,000, covering office rent, admin staff, insurance, vehicles and software. You expect to complete about $3,000,000 in direct job costs this year.

$300,000 ÷ $3,000,000 = 10% overhead rate.

A few things to watch:

• Use real numbers from your P&L, not a figure you heard from another contractor. Overhead varies widely by company size.
• Revisit it every year. If revenue drops and overhead doesn't, your rate climbs, and bids built on last year's rate will come up short.
• Keep job costs out of it. A superintendent who is billed to jobs belongs in general conditions, not in company overhead.

Markup vs. Margin: The Mistake That Shrinks Your Profit

Markup is a percentage of cost. Margin is a percentage of the selling price. Because the base is different, the same dollar amount produces a smaller margin than markup.

If your costs are $100,000 and you add a 20% markup, you bid $120,000. Your profit is $20,000, which is only 16.7% of the selling price. Here's how common markups convert, per Buildertrend's markup and margin guide:

To hit a target margin, work backward from the selling price instead:

Selling price = Cost ÷ (1 − Target margin)

For a 20% margin on $100,000 of cost: $100,000 ÷ 0.80 = $125,000. Markup is the tool you use to build a bid; margin is how you measure whether the job actually made money.

Worked Example: From Direct Costs to a Final Bid

Here's a commercial tenant improvement priced the way an estimator would lay it out, using the 10% overhead rate from above and an 8% profit target.

Notice the result. You set an 8% profit target, but your profit as a share of the bid is $22,000 ÷ $297,000 = 7.4%. Combined, overhead and profit come to about 15.8% of the selling price. That's the markup-versus-margin gap at work, and it's why you should always check the margin on your final number.

Where contingency fits: keep it as its own visible line inside direct costs, sized to the job's real unknowns. Don't bury it inside profit, and don't apply profit to it twice.

Typical Overhead and Profit Percentages

There's no universal O&P number, because overhead depends on your company's size and volume. What you can benchmark is the result. According to CFMA's Construction Financial Benchmarker, as summarized by James Moore & Co., the average contractor earns a 6.3% net margin before tax, while best-in-class firms reach about 11.9%.

Two things follow from that. First, net margins in construction are thin, so a single percentage point of underpriced overhead is a big share of your annual profit. Second, if your bids routinely show 20% for O&P but your year-end net is 3%, the gap is telling you something: either overhead is higher than your rate assumes, or jobs are leaking money in the field.

What "10 and 10" Means in Insurance Claims

On insurance repair work, "10 and 10" is shorthand for 10% overhead plus 10% profit added to the repair estimate. Adjusters and restoration contractors use it constantly, though other splits, such as 10 and 15, also appear, as noted by United Policyholders.

The math depends on how it's applied. Added side by side, 10% + 10% on a $100,000 repair gives $120,000. Applied one on top of the other, as many contractor estimates do, $100,000 × 1.10 × 1.10 gives $121,000. Know which method your estimate and the carrier's estimate are using before you argue about the total.

The three-trade rule

Insurers commonly treat O&P as owed when a repair reasonably needs a general contractor to coordinate several trades, often three or more, such as roofing, drywall and painting. Disputes usually center on whether the job truly needs GC-level coordination, and on whether O&P belongs in the actual cash value payment.

How O&P appears in an Xactimate estimate

In Xactimate, O&P is applied as a percentage to the line items it covers and shown as a separate total near the bottom of the estimate. Getting it paid is easier when the scope clearly shows the trades involved and the coordination they need. Our Xactimate estimating services prepare insurance-ready estimates that document scope trade by trade.

Whether overhead and profit is owed on a claim depends on the policy language and state law. This section is general information, not legal advice; talk to a licensed public adjuster or attorney about a specific claim.

6 Overhead and Profit Mistakes That Cost Contractors Money

1. Copying someone else's percentage. Another firm's 10% has nothing to do with your rent, payroll or volume.
2. Treating markup as margin. A 20% markup is a 16.7% margin, and that gap compounds across a year of jobs.
3. Counting job overhead twice. If the superintendent is priced in general conditions, don't recover him again in the company overhead rate.
4. Marking up subcontractor quotes twice. Apply O&P once, to the full cost including subs, not to each sub quote and then again to the total.
5. Never updating the rate. An overhead rate set in a strong year will underprice bids in a slower one.
6. Cutting profit to win the bid. Trimming overhead or profit to land a job only works if you also trim the cost. Otherwise you're buying work.

If O&P decisions keep coming up on high-stakes bids, an outside review helps. Our construction estimating consultants audit bid structure, markups and cost models for contractors who want a second opinion before submission.

Overhead and Profit FAQs

What is a good overhead and profit percentage in construction?

There's no single right number, because overhead depends on company size and job volume. As a benchmark, CFMA data puts the average contractor's net margin at 6.3% before tax, with best-in-class firms near 11.9%. Calculate your own overhead rate first, then set profit on top of it.

Is overhead included in the 10% profit?

No. Overhead and profit are separate. In the common "10 and 10" convention, one 10% covers overhead and another 10% is profit, for roughly 20 to 21% in total depending on how it's applied.

Do insurance companies have to pay overhead and profit?

Often, when a repair reasonably needs a general contractor to coordinate several trades, commonly three or more. The exact obligation depends on the policy and state law, so the scope documentation matters a great deal.

Should overhead and profit be shown to the owner?

On lump-sum bids, O&P is usually built into the price and not broken out. On cost-plus, guaranteed maximum price and insurance work, it's normally listed as a separate line so the owner or carrier can see it.

Conclusion

Overhead and profit aren't a number you pick; they're a number you calculate. Start from your own overhead, apply it to the right base, check the margin on the final price, and keep profit separate from everything else.

The essentials:

• Overhead rate = annual company overhead ÷ annual direct job costs. Update it every year.
• Markup builds the bid; margin tells you whether the job made money.
• On insurance work, know whether "10 and 10" is being added or stacked.

Need O&P built into your bids without the guesswork? Our construction estimating services deliver full estimates with labor, materials, general conditions and overhead and profit laid out line by line. Overhead and profit is optional on our Standard plan and included in Premium; compare them on our estimating plans and pricing page.

Have a bid due and want the markups checked? Send us your plans, project location and deadline. We'll quote the job with a confirmed delivery date before you commit.

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How does your company set its overhead rate? Share your method in the comments.