What are typical overhead rates for small construction companies?
For small residential contractors, overhead typically falls between 10% and 20% of revenue. Commercial general contractors tend to run a bit leaner at 8% to 15%. The spread depends on the size of your operation, how much office infrastructure you maintain, what kind of insurance you carry, and whether you have admin staff or handle everything yourself.
Overhead includes the costs of running your business that don’t tie directly to a specific job. Think office rent or home office costs, general liability and workers’ comp insurance, vehicle payments and fuel for non-job-specific driving, office supplies, accounting fees, phone and internet, licensing, and any administrative salaries. These expenses exist whether you’re building one house or five.
What overhead does not include is direct job costs. Materials purchased for a specific project, labor hours worked on that project, and subcontractor invoices for that project are all cost of goods sold. They belong on the job cost side of your books, not in overhead. Mixing these two categories is one of the most common bookkeeping mistakes in construction, and it makes your financial picture unreliable.
The reason this distinction matters so much is bidding. Your bid markup needs to cover direct job costs, your share of overhead, and your profit margin. If you’re estimating overhead at 8% but your actual overhead runs 16%, every job you win is half as profitable as you think. Win enough of those jobs and you’re growing yourself right into a cash crisis. Revenue goes up, bank account goes down.
To calculate your actual overhead rate, take your total overhead expenses for a period and divide by your total revenue for that same period. If you spent $120,000 on overhead last year and brought in $900,000 in revenue, your overhead rate is about 13.3%. That number should inform every bid you put together.
Track this quarterly at minimum. Overhead rates shift as your business changes. Hiring an office manager, upgrading your insurance, leasing a bigger shop, or adding trucks all push overhead up. If your bids don’t reflect those changes, your margins shrink without you realizing it until it’s too late.
The fix is straightforward but requires discipline. Your bookkeeping system needs to cleanly separate direct job costs from operating expenses so you can see true gross margin on each project and your real overhead burden across the business. Many contractors lump everything together or let costs pile up in vague categories, which makes it impossible to know where the money actually goes. Working with bookkeepers in Fairfax who understand construction accounting can help you build a chart of accounts that gives you these numbers without guesswork.
Once you know your real overhead rate, you can set bid markups with confidence. You stop guessing and start pricing based on what your business actually costs to run. That’s the difference between growing profitably and just staying busy.
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