Overhead and profit calculator: markup vs margin for contractors

Multiply the direct job cost (labor, materials, subs and equipment) by your overhead and profit percents. There are two common ways to apply “10 and 10”.

• Simple: sell price = cost × (1 + overhead % + profit %)
• Compounded: sell price = cost × (1 + overhead %) × (1 + profit %)

Simple 10 and 10 is a 20% markup. Compounded, profit is also charged on the overhead, so it comes to 21%.

Example: a kitchen remodel costs 44,000 dollars. Simple 10 and 10 adds 8,800 dollars for a sell price of 52,800. Compounded adds 4,400 of overhead and 4,840 of profit, 9,240 dollars in all, for 53,240.

Estimating programs such as Xactimate have a setting to make O&P cumulative, so check which way your estimate adds it.

Markup is a percent of cost; margin is a percent of the sell price.

• Margin = markup ÷ (1 + markup)
• Markup = margin ÷ (1 − margin)
• Sell price for a target margin = cost ÷ (1 − margin)

A 20% markup is a 16.7% margin. A 20% margin needs a 25% markup.

Example: on the 44,000 dollar job, a 20% markup gives 52,800 dollars. Keeping 20% of the sell price needs 44,000 ÷ 0.80 = 55,000 dollars, so mistaking markup for margin leaves 2,200 dollars on the table. The chart in step 5 has every common pair and prints on one page.

Divide last year’s overhead by last year’s direct job costs; that is the markup your overhead needs on every job.

• Overhead markup = overhead ÷ direct job costs
• Overhead share of revenue = overhead ÷ revenue
• Markup for a target net profit = (1 + overhead markup) ÷ (1 − target net %) − 1

All three numbers are on your profit and loss: total income, the costs charged to jobs, and every other expense. Add your own pay to overhead if it is not in those expenses.

Example: revenue of 1,200,000 dollars, job costs of 870,000 and overhead of 216,000. Overhead needs a 24.8% markup on cost, and a 10% net profit needs a 38.7% markup. At compounded 10 and 10 (21%), the same company loses 3.2% of the sell price on every job.

Give labor, materials, subs and equipment their own markup, then check the blended margin on the whole job.

Blended margin = (total sell price − total cost) ÷ total sell price

Example: labor 16,200 dollars at 30%, materials 18,800 at 20%, subs 7,500 at 15% and equipment 1,500 at 15% sell for 53,970 dollars. That is a 22.7% blended markup and an 18.5% margin, well short of the 38.7% markup in the overhead example above.

QuickBooks Online can add a markup percent to billable expenses (Settings > Account and settings > Expenses). To compare each job’s estimate with what it cost, our field guide on job costing in QuickBooks Online for contractors shows the setup, and the labor burden calculator gives the true cost of a labor hour.

Put the cost in B2, the overhead percent in C2 and the profit percent in D2, then use one formula per method.

• Simple: =B2*(1+C2+D2)
• Compounded: =B2*(1+C2)*(1+D2)
• Share of the sell price: =B2/(1-C2-D2)
• Margin from a markup in C2: =C2/(1+C2)

Type the percents as 10%, or as 0.1. The job sheet and the chart above also download as CSV files that open in Excel or Google Sheets.