Construction money, explained
Overhead & profit
Overhead and profit (often written O&P) are the two amounts you add on top of a job's direct costs: overhead covers the cost of running your business that no single job pays for, and profit is what is left for you after both direct costs and overhead are covered.
Updated June 2026
What are overhead and profit?
Direct costs are the costs you can point at on a specific job — its labor, materials, and subs. Overhead is everything else it takes to keep the doors open: your truck, insurance, office, software, phone, the time you spend estimating and not getting paid for, and a share of your own salary that is not tied to swinging a hammer. No single job pays for those outright, so every job has to carry a slice.
Profit is what remains after a job covers both its direct costs and its fair share of overhead. It is not a bonus or the same thing as overhead — it is the return that makes the business worth running and funds growth, slow seasons, and risk. Lumping the two together is how contractors end up working hard for what is really just reimbursed overhead.
In the insurance and general-contracting world you will often see O&P quoted as a combined figure — the classic shorthand is the 10-and-10 (10% overhead and 10% profit) used in many estimates — but that is a convention, not a law. Your real overhead rate depends on your own costs, and you should price from your numbers, not a rule of thumb.
What counts as overhead for a contractor?
Overhead is the recurring cost of being in business regardless of which jobs you run this month. Typical buckets: general liability and other insurance, vehicle and equipment costs, rent or shop space, office and admin help, software and phone, marketing, accounting and legal, licensing, and the portion of your own pay for running the company rather than doing field work.
The key move is to total your annual overhead and then figure out how to spread it across the work you expect to do. A common approach is to express overhead as a percentage of revenue or of direct job costs, so each estimate automatically carries its share rather than leaving it to be covered by whatever is left over.
Get this wrong in either direction and it hurts. Under-recover overhead and you are slowly funding the business out of your profit; over-load it and your bids stop winning. The point is to know your real number so the markup you charge is grounded, not guessed.
How do you build O&P into a price?
Start from direct costs, add your overhead allocation, then add profit on top — in that order. The combined uplift is the markup you charge over direct cost, and the share of the final price you keep after direct costs is your margin. This is exactly where markup-versus-margin matters: a 10% profit on top of cost is not a 10% margin on the price.
Decide the profit you want as a margin first, since margin is the share of revenue you actually take home, then convert it to the markup multiplier you apply to costs. That keeps overhead and profit from quietly getting squeezed when you discount to win a job.
In Simple Contractor CRM, line-item estimates show live margin as you build the bid, so you can see whether a price still covers overhead and leaves real profit before you send it — instead of finding out at closeout that the job only paid you back your overhead.
Worked example
A job has $10,000 in direct costs. Your overhead works out to 15% of direct costs, so you add $1,500, bringing your true cost to $11,500. You want a 10% profit on the selling price. To net 10% on top of the $11,500 base, you price the job at $11,500 / (1 - 0.10) = $12,778.
Check it: profit is $12,778 - $11,500 = $1,278, which is 10% of the $12,778 price. Now notice the trap — if you had simply added 10% to the $11,500 ($12,650), your profit would be only 9.1% of the price, because adding 10% to cost is not the same as keeping a 10% margin. Pricing the overhead in first and then targeting profit as a margin is what keeps the job from quietly working for free.
Frequently asked
- What is the 10-and-10 rule?
- It is a common shorthand — 10% overhead plus 10% profit — seen often in insurance and general-contracting estimates. It is a convention, not a fixed law; your real overhead rate depends on your own costs.
- Is profit the same as overhead?
- No. Overhead reimburses the cost of running the business; profit is what is left after both direct costs and overhead are covered. Confusing the two is how contractors end up earning only reimbursed overhead.
- How do I find my overhead rate?
- Total your annual overhead costs, then express that total as a percentage of your expected revenue or direct job costs so each estimate carries its share automatically.
- Where does O&P show up in Simple Contractor CRM?
- SCC's line-item estimates show live margin as you build the bid, so you can confirm a price still covers overhead and leaves real profit before you send it to the customer.
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