The short answer: in our eight worked trade examples, overhead adds between $4.05 (house cleaning) and $16.56 (roofing) to every billable hour, and profit of 12% to 25% of full cost goes on top of that, after every wage, including yours, is paid. Work out overhead from a year of your own bills, spread it over the hours you actually bill, and only then add profit.
The worked numbers come from the example shops in our trade spreadsheets. Where a figure came from an owner's own pricing, it is marked as one owner's number, not an industry average.
What counts as overhead?
Overhead is anything you pay to stay open whether or not you have a job this week. The big lines are insurance, office and sales salaries, commissions, marketing, vehicles and rent. If you would still pay it in a week with no jobs booked, it is overhead.
Here are figures a few owners we studied put on single lines (one owner's number each, not averages):
| Overhead line | One owner's figure |
|---|---|
| Marketing | 5% of gross sales (roofing) |
| Warehouse or office rent | $2,000 to $4,000 a month (roofing) |
| Fuel and upkeep per vehicle | $300 to $400 a week (roofing) |
| Running a truck | $20 an hour (lawn care) |
| General liability insurance | at least $1 million of cover (fencing) |
| Estimating software | about $5,000 for one program (plumbing) |
Not overhead: materials for a job (they go on the quote with a markup), crew hours on the job (labor), and your own wage (also labor, so it gets charged on every hour you work; see the true hourly rate guide).
Don't list overhead from memory. Pull 12 months of bank and card statements and mark every payment that isn't materials or payroll. Add the yearly bills that don't come every month, like insurance renewals, licences and truck registration.
How to calculate overhead cost per billable hour
Divide a year of overhead by the hours your crew actually bills; in the roofing example that's $83,800 / 5,061 = $16.56 an hour. Billable hours are hours spent doing paid work, not hours paid.
| Trade example | Overhead / year | Billable hours / year | Overhead per billable hour | Share of the break-even rate |
|---|---|---|---|---|
| House cleaning | $10,200 | 2,520 | $4.05 | 9% |
| Painting | $30,700 | 4,576 | $6.71 | 14% |
| Drywall | $33,500 | 4,576 | $7.32 | 12% |
| Fencing | $41,000 | 4,264 | $9.62 | 17% |
| Pressure washing | $23,200 | 2,280 | $10.18 | 19% |
| Lawn care | $26,300 | 2,290 | $11.48 | 20% |
| Plumbing | $55,300 | 4,264 | $12.97 | 19% |
| Roofing | $83,800 | 5,061 | $16.56 | 24% |
Divide by paid hours instead and roofing's $16.56 becomes $11.06, which leaves $27,848 a year of overhead that no job paid for. The overhead per hour then goes into the break-even rate, which the true hourly rate guide works out in full.
Why another company's price or overhead doesn't fit yours
Every shop's overhead is different, so a price per foot or per square copied from someone else carries their costs, not yours. Look at the table: the plumbing example needs $12.97 an hour for overhead and the painting example needs $6.71. Copy the painter's rate structure into the plumbing shop and every billable hour comes up $6.26 short, which over 4,264 hours is $26,693 a year.
Overhead also grows with the business. A shop with a second truck, an office and someone answering the phone can carry many times the lawn example's $26,300, so the number has to come from your own statements every year.
Overhead as a percentage: when it works and when it doesn't
A percentage works only if it comes from your own books; in our examples overhead ranges from 9% to 24% of the break-even rate, so no single borrowed percent fits. One drywall owner we studied builds his own: he adds 47% to every labor dollar for workers' comp, liability, social security and unemployment, then 13% for profit. On $1,000 of wages, that is $470 of costs before a cent of profit.
Some owners put overhead at 20% to 35% of every job in their own experience. That is a range from their books, not a rule for yours.
Does 10 and 10 overhead and profit work?
Only if your overhead happens to be close to 10% of job cost, and even then you keep 9.1%, not 10%. "10 and 10" means adding 10% for overhead and then 10% for profit, and it is common shorthand on change orders.
| Step | On a $10,000 job cost |
|---|---|
| + 10% overhead | $11,000 |
| + 10% profit | $12,100 |
| Profit as a share of the price | $1,100 / $12,100 = 9.1% |
In the roofing example, overhead is $16.56 on top of a crew cost that averages about $52 per billable hour, roughly 32% of labor cost. A flat 10% there would miss most of it. The gap between adding 10% and keeping 10% is explained in markup vs margin.
Profit is not your pay
Profit is what the business keeps after every cost, including a fair wage for you; it is never the same money as your pay. A good test: after overhead, crew wages and a real salary for you are all paid, is there still at least 10% left? If not, the business is only paying you, not earning anything.
If your wage isn't in the rate, the "profit" at year end is really your pay, and the business has no profit at all. Profit buys the next truck, carries a slow season and pays for the jobs that go wrong.
How much profit should a contractor make?
Owners we studied aim for 10% to 20% net profit, and 35% to 50% gross margin, and the two are different measures. Gross margin is what's left after job costs (materials and crew) but before overhead. Net profit is what's left after overhead and the owner's pay too. Comparing one owner's gross with another's net is how people get confused.
| Trade | One owner's figure | Which kind |
|---|---|---|
| Roofing | at least 10% | Net, after owner salary |
| Lawn care | 16.9% his company made | Net |
| Plumbing | about 20% on bids | Margin on the bid |
| Painting | about 45% on exterior work | Gross margin |
| Painting | 50% target | Gross profit |
These are what those owners said about their own businesses, not industry averages. A 45% gross margin and a 10% net profit can be the same company: the 35 points between them pay the overhead and the owner.
Profit and safety cushion settings in the examples
The trade spreadsheets add profit on top of full cost (overhead and owner's wage already in it), plus a separate 5% safety cushion for surprises, so the profit line stays profit.
| Trade example | Profit on top of cost | Safety cushion | Profit you keep on the sample job |
|---|---|---|---|
| Roofing | 12% | 5% | $2,861.56 on a 20-square re-roof |
| Drywall | 13% (one drywall owner's number) | 5% | $1,683.41 on a basement finish |
| Painting | 20% | 5% | $2,344.54 on a 4 bed / 4 bath interior |
| Fencing | 20% | 5% | $2,244.13 on 150 ft of cedar privacy |
| Plumbing | 20% | 5% | $1,216.93 on a bathroom rough-in |
| Pressure washing | 25% | 5% | $207.54 on a house and driveway |
"Profit you keep" includes the cushion and the markups on materials and subs, which is why it is bigger than the profit setting alone.
Worked example: overhead and profit on one plumbing job
The plumbing example's bathroom job carries $534.97 of overhead and keeps $1,216.93 of profit on a $5,094.45 price before tax. Here is how those two numbers come out:
| Step | Plumbing sample job |
|---|---|
| Labor hours, including forgotten hours like the site visit and supply runs | 41.25 |
| Overhead carried: 41.25 x $12.97 | $534.97 (already inside the $69.95 shop rate) |
| Full cost: materials, labor, equipment, permit, forgotten items | $3,877.52 |
| Price before tax, after markups, 5% cushion and 20% profit | $5,094.45 |
| Profit you keep | $1,216.93 (23.9% of the price) |
Without overhead in the rate, that $534.97 would have come out of the $1,216.93, and the job would look far better on paper than in the bank. Checking a finished job against numbers like these is what job costing is for.
Five mistakes that eat overhead and profit
Each of these moves money from profit into costs nobody priced.
- Dividing overhead by paid hours. $27,848 a year missing in the roofing example.
- Borrowing an overhead percent. 10 and 10 would miss most of roofing's real overhead.
- Copying a competitor's price. Their price carries their overhead; in the table above, the gap between two shops is over $6 an hour.
- Treating deposits as profit. A deposit is money for a job you haven't done yet. Spend it on last month's bills and you start the new job already behind.
- Doing extras for free. Unpriced extra work carries overhead but no price; the change orders guide covers how to charge for it.
Work out your own overhead and profit
Start with the free true hourly rate calculator: enter your yearly overhead, your people and their billable hours, and it gives your break-even rate with overhead inside it. Each trade's Pricing Calculator then adds markup, cushion and profit on every quote and shows the profit you keep in dollars: Roofing, Plumbing, Painting, Drywall, Fencing, Lawn Care, House Cleaning and Pressure Washing.