Short answer
Calculate overhead per hour first: yearly overhead divided by sellable hours. Add that share to labour and materials to get break-even, then divide by one minus your profit margin. Example: $36,000 over 1,600 hours is $22.50 an hour, so a 3-hour job with $172.50 of direct cost breaks even at $240.00 and prices at $300.00 for 20% profit.
- Overhead per hour = yearly overhead / (people in the field x billable days x 8).
- 10-and-10 multiplies direct cost by 1.21 and keeps 9.09% of the price as profit.
- On a 3-hour job, overhead was 39.13% of direct cost, so 10-and-10 quoted $208.73 against a $240.00 break-even.
- Profit is applied to break-even by division: break-even / (1 - margin).
- Overhead does not include profit. Profit is what is left after overhead is paid.
On this page
- What is overhead and profit?
- How to calculate overhead per hour from a yearly overhead list
- Worked example: overhead and profit on a small job
- What is 10 and 10 overhead and profit, and why does it fail small jobs?
- How are overhead and profit calculated in construction? (the formula)
- Overhead and profit formulas for Excel
- What is a good overhead percentage and a good profit margin?
- Overhead and profit calculator vs a spreadsheet or custom build
- Step-by-step
- FAQ
What is overhead and profit?
Overhead is what it costs to keep the business open whether or not a job is running: insurance, the truck, phone, software, accounting, advertising, office time. Profit is what is left from the price after labour, materials and overhead are all paid. They are two different lines, and overhead never includes profit.
Direct costs belong to one job: the labour on it, its materials, its subcontractors and rentals. Overhead belongs to the year. The whole problem of overhead and profit is moving a yearly number onto individual jobs fairly.
I'm not a contractor; I build pricing math. Every figure below shows its working, and every input is an assumption for you to replace.
How to calculate overhead per hour from a yearly overhead list
List a year of overhead, total it, and divide by the hours you can sell. That gives overhead per hour, which each job then carries in proportion to its hours.
| Overhead item | Per year |
|---|---|
| Truck payment, fuel and maintenance | $12,000 |
| Office and admin time you pay for | $6,000 |
| Liability and vehicle insurance | $4,800 |
| Advertising and website | $3,600 |
| Tools and equipment replacement | $3,000 |
| Accounting and bookkeeping | $2,400 |
| Phone and software | $1,800 |
| Miscellaneous | $1,800 |
| Licences and permits | $600 |
| Total | $36,000 |
Sellable hours: 1 person in the field x 200 billable days x 8 hours = 1,600. Overhead per hour: $36,000 / 1,600 = $22.50. Every hour you work on a job has to bring in $22.50 for overhead on top of what that hour of labour costs.
Leave out wages of people who work on jobs (that is labour) and materials (direct cost). Use billable days, not calendar workdays: weather, quoting, holidays and slow weeks all shrink the number, and a smaller denominator is the honest one.
Worked example: overhead and profit on a small job
A 3-hour job with $60 of materials carries $67.50 of overhead, which is more than the materials. Priced for a 20% profit margin it comes to $300.00.
Worked example: Small 3-hour service job (example assumptions - replace with yours)
| Item | Value |
|---|---|
| Workers (input) | 1 |
| Hourly wage paid (input) | $30.00 |
| Labour burden % (input) | 25% |
| Materials (input) | $60.00 |
| Overhead for the year (input) | $36,000.00 |
| People in the field (input) | 1 |
| Billable days a year (input) | 200 |
| Target margin % (input) | 20% |
| Jobs a week (input) | 5 |
| Hours on the job (input) | 3 |
| Loaded labour rate (per hour) | $37.50 |
| Crew-hours | 3 |
| Labour cost | $112.50 |
| Overhead per sellable hour | $22.50 |
| Overhead share | $67.50 |
| Break-even cost | $240.00 |
| Price to quote | $300.00 |
| Profit on the job | $60.00 |
| Price if you MARK UP instead | $288.00 |
| Margin you actually keep with markup | 16.67% |
| Lost per job by marking up | $12.00 |
| Lost per year by marking up | $3,120.00 |
Computed with the same formulas as the free calculators on this site. Change any input in the calculator above to see your own numbers.
The labour is 3 hours at a $37.50 loaded rate ($30 wage plus a 25% burden assumption) = $112.50. Direct cost is $112.50 + $60 = $172.50. Overhead is 3 x $22.50 = $67.50. Break-even is $240.00. Dividing by 0.80 for a 20% margin gives $300.00, of which $60.00 is profit.
What is 10 and 10 overhead and profit, and why does it fail small jobs?
10-and-10 adds 10% overhead to direct cost, then 10% profit on top of that. It multiplies direct cost by 1.1 x 1.1 = 1.21. It works only when your real overhead happens to be about 10% of that job's direct cost, and on small, labour-heavy jobs it usually is not.
| Figure | 3-hour job | 80-hour job |
|---|---|---|
| Direct cost (labour + materials) | $172.50 | $11,000.00 |
| Real overhead share (hours x $22.50) | $67.50 | $1,800.00 |
| Overhead as % of direct cost | 39.13% | 16.36% |
| Break-even | $240.00 | $12,800.00 |
| 10-and-10 price (direct x 1.21) | $208.73 | $13,310.00 |
| 10-and-10 result | $31.27 below break-even | $510 profit, 3.83% of price |
| Price at 20% margin | $300.00 | $16,000.00 |
The small job loses money at 10-and-10 because its overhead share is almost four times the 10% allowance. The big job survives because $8,000 of materials inflate the direct cost that the 10% is calculated on, but it keeps a fraction of the intended profit. Same business, same overhead, and a percentage-of-cost rule gives two unrelated answers.
Worked example: Large materials-heavy job, same business (example assumptions)
| Item | Value |
|---|---|
| Workers (input) | 1 |
| Hourly wage paid (input) | $30.00 |
| Labour burden % (input) | 25% |
| Materials (input) | $8,000.00 |
| Overhead for the year (input) | $36,000.00 |
| People in the field (input) | 1 |
| Billable days a year (input) | 200 |
| Target margin % (input) | 20% |
| Jobs a week (input) | 1 |
| Hours on the job (input) | 80 |
| Loaded labour rate (per hour) | $37.50 |
| Crew-hours | 80 |
| Labour cost | $3,000.00 |
| Overhead per sellable hour | $22.50 |
| Overhead share | $1,800.00 |
| Break-even cost | $12,800.00 |
| Price to quote | $16,000.00 |
| Profit on the job | $3,200.00 |
| Price if you MARK UP instead | $15,360.00 |
| Margin you actually keep with markup | 16.67% |
| Lost per job by marking up | $640.00 |
| Lost per year by marking up | $33,280.00 |
Computed with the same formulas as the free calculators on this site. Change any input in the calculator above to see your own numbers.
Even when 10-and-10 covers overhead exactly, the profit is smaller than it sounds: the 10% profit is 0.11 of direct cost inside a price of 1.21, so it keeps 9.09% of the price, and overhead plus profit together are 17.36% of the price, not 20%.
How are overhead and profit calculated in construction? (the formula)
Overhead share = crew-hours x (yearly overhead / sellable hours). Break-even = labour + materials + overhead share. Price = break-even / (1 - profit margin). Profit = price - break-even.
That order matters. Overhead is a cost, so it goes into break-even. Profit is a share of the final price, so it is applied last and by division. Adding a profit percentage on top of cost is a markup, and a 20% markup keeps only 16.67% of the price; the markup vs margin guide has the full conversion chart.
Some estimators spread overhead as a percentage of direct cost instead of per hour. That can be defended if you calculate the percentage from your own books (yearly overhead / yearly direct cost) and your jobs have a similar labour-to-materials mix. If the mix varies, as it did above, per-hour overhead tracks the real cost more closely.
Try it with your numbers — free
The free calculator does this whole method in about a minute: loaded labour, overhead share, break-even and the price to quote at your margin. No signup, nothing to download, and your numbers stay in your browser.
Open the free calculator →Get the free spreadsheetWant it built around your own rates, services and branding? Done-for-you custom calculator ($497).
Overhead and profit formulas for Excel
These formulas turn a yearly overhead list into a price in Excel or Google Sheets. Keep the overhead list on its own tab so a new insurance bill updates every quote.
Yearly overhead total
=SUM(Overhead!B2:B20)One overhead item per row on a tab named Overhead, yearly amounts in column B.
Overhead per sellable hour
=B6/(B7*B10*8)B6 = yearly overhead, B7 = people in the field, B10 = billable days a year.
Price with overhead and profit
=(B2*B3*(1+B4)+B5+B2*B11)/(1-B8)B2 = crew-hours, B3 = wage, B4 = burden %, B5 = materials, B11 = overhead per hour, B8 = profit margin %.
10-and-10 check price
=(B2*B3*(1+B4)+B5)*1.1*1.1Put next to your real price. If it is lower than break-even, 10-and-10 would lose money on this job.
Overhead as % of direct cost
=B2*B11/(B2*B3*(1+B4)+B5)Shows how far this job's real overhead is from a flat 10%.
What is a good overhead percentage and a good profit margin?
There is no universal good overhead percentage; it depends on how much revenue your overhead is spread across. Calculate yours: yearly overhead / yearly revenue. With $36,000 of overhead, $150,000 of revenue gives 24%, and the same overhead on half the revenue doubles the percentage.
Profit margin is a decision, not a statistic. Pick the margin you want to keep and price to it. At a 10% margin the small example job would be priced at $266.67 ($240.00 / 0.90); at 20% it is $300.00. Whatever you pick, apply it to a break-even that already includes overhead.
For the full quoting method from hours to price, see how to price a contractor job. If your burden percentage is a guess, build it with the labor burden calculator guide.
Overhead and profit calculator vs a spreadsheet or custom build
For a single quote, the free overhead and profit calculator on this site is enough: it takes yearly overhead, people in the field and billable days, and returns overhead per hour, break-even and price. To keep the overhead list and every job, use a spreadsheet.
- Free calculator: one job at a time, in the browser, no signup.
- Free Job Pricing Starter: loaded labour, break-even and margin pricing in Excel or Google Sheets. It takes overhead as a % of job cost, so enter the percentage your per-hour overhead works out to on a typical job.
- Custom build ($497): your rates, overhead and margin set once and fed into every estimate, with a branded quote page and job log.
What to put in the sheet: the overhead list with a yearly total, people in the field, billable days, overhead per hour, and on each job the crew-hours, loaded labour, materials, break-even, margin and price.
Step-by-step: Overhead and Profit Calculator: Why 10-and-10 Fails Small Jobs
- List a year of overhead. Total insurance, vehicles, phone, software, accounting, advertising, office time and tools. Leave out job labour and materials.
- Count sellable hours. Multiply people in the field by days you actually bill in a year by 8 hours.
- Divide to get overhead per hour. Yearly overhead / sellable hours. $36,000 / 1,600 = $22.50 an hour in the example.
- Give each job its share. Multiply the job's crew-hours by overhead per hour and add it to labour and materials to get break-even.
- Apply profit by division. Price = break-even / (1 - profit margin). For 20% profit, divide by 0.80.
Run your own numbers — free
The free calculator does this whole method in about a minute: loaded labour, overhead share, break-even and the price to quote at your margin. No signup, nothing to download, and your numbers stay in your browser.
Open the free calculator →Get the free spreadsheetWant it built around your own rates, services and branding? Done-for-you custom calculator ($497).
Frequently asked questions
How do you calculate overhead and profit?
Divide yearly overhead by sellable hours to get overhead per hour, multiply by the job's hours, and add labour and materials to reach break-even. Then divide break-even by one minus your profit margin. In the example, $240.00 / 0.80 = $300.00.
What does 10 and 10 overhead and profit mean?
It means adding 10% for overhead to direct cost and then 10% for profit on that total, which multiplies direct cost by 1.21. The profit ends up as 9.09% of the price, and it only covers overhead when your real overhead is about 10% of that job's direct cost.
How much should a contractor charge for overhead and profit?
Charge the overhead your own books say each hour needs, plus the profit margin you choose. With $36,000 of yearly overhead and 1,600 sellable hours, each hour carries $22.50 of overhead before profit. Your figure comes from your own overhead list, not someone else's percentage.
Does overhead include profit?
No. Overhead is a cost of running the business, such as insurance, vehicles and software. Profit is what remains after labour, materials and overhead are paid. Put overhead into break-even, then apply profit to break-even by dividing by one minus the margin.
What is a good overhead percentage in construction?
There is no single good figure, because the percentage depends on how much revenue the overhead is spread across. Work out yours as yearly overhead divided by yearly revenue. $36,000 of overhead on $150,000 of revenue is 24%; on twice the revenue it would be half that.
Is 10% a good profit margin?
It is a choice, not a benchmark. The test is whether 10% of the price pays for the risk, slow months and reinvestment you need. Apply it correctly: break-even / 0.90. Adding 10% on top of cost is a markup that keeps only 9.09% of the price.
How do you get overhead and profit on insurance claims?
Insurance estimates often show overhead and profit as separate lines, frequently written as 10% and 10%. Whether a carrier pays them depends on the policy and the claim, so ask the adjuster in writing. This guide covers pricing your own work, not claim rules.
I'm not a contractor, landlord or accountant. I build the pricing maths, and every number on this page shows its working so you can check it instead of trusting it. Watch the breakdowns on YouTube →