Construction Overhead and Profit: How to Set Markup That Actually Covers Your Costs

Most contractors price jobs without knowing their overhead rate — then wonder why the business runs thin even when projects are busy. A framing contractor billing $2.4M per year with 12% overhead and 8% profit target needs to recover $480,000 in non-job costs from every estimate. If that number isn't calculated and built into every bid, it comes out of the owner's pocket — or it doesn't get paid at all, and the business slowly bleeds out.

Overhead and profit aren't the same thing. Overhead is the cost of running the company. Profit is what remains after overhead and all job costs are paid. Markup is the multiplier applied to job costs to recover both. And markup percentage calculated on cost is not the same as margin percentage calculated on price — a distinction that costs contractors tens of thousands of dollars annually when confused.

This guide covers how to calculate your actual overhead rate, how to set markup that covers overhead and hits target profit, how to allocate overhead across different project types, and how construction time tracking software connects to overhead absorption in ways most contractors miss.

Overhead vs. General Conditions vs. Profit

Before calculating anything, define terms:

Term

What It Is

Where It Lives

General conditions

Project-specific costs not tied to a scope item (super, temp power, dumpsters)

Direct job cost — in every estimate as a line item

Company overhead

Costs to run the business regardless of project activity

Recovered through markup on all projects

Profit

What remains after all job costs and overhead

Added after overhead in markup calculation

General conditions are not overhead. A superintendent working full-time on one project is a direct job cost for that project — measured, estimated, and tracked against budget. A company VP managing three superintendents is overhead. The confusion between these two categories leads to double-counting in some estimates and missing costs in others.

If you need a refresher on how overhead fits into full financial reporting, review this breakdown of a contractor profit and loss statement inside our broader **construction management resources** hub.

What's Included in Company Overhead

Company overhead covers every cost that exists whether you have one project running or ten:

Office and Administrative

• Office rent or mortgage
• Utilities (office)
• Office supplies, postage, printing
• Software subscriptions (accounting, estimating, project management, construction time keeping software)
• Phone and internet
• IT support

Salaries and Compensation — Indirect

• Owner salary (to the extent it's not billed to jobs)
• Office manager, bookkeeper, HR
• Estimator time (not charged to specific projects)
• Business development and sales staff
• Marketing coordinator

Vehicles and Equipment — Overhead Portion

• Company vehicles not assigned to specific projects
• Vehicle insurance
• Fuel for non-job vehicles
• Equipment depreciation (non-project assets)

Professional Services

• Accounting and tax preparation
• Legal fees (general counsel, not project-specific)
• Insurance — general liability (overhead portion), umbrella, E&O
• Workers comp — indirect staff

Business Development

Originally published at https://blog.tasktag.com on July 17, 2026.