Why do contractors charge overhead

Items that may be included in job overhead are as follows:. Project Specific Salaries — These differ from the office salaries and include wages, payroll taxes and benefits paid to employed project superintendents, foreman, field engineers, project schedulers, and other employed on-site staff.

These costs include reimbursable expenses like travel or per diem expenses. These costs are estimated based on a burdened hourly, weekly or monthly rate multiplied by the amount of time that individual is expected to be on the project. Temporary Office Facilities — A construction trailer, owned or leased, leased office space plus utilities and office equipment required for the field staff to conduct business and meetings.

In the instance of an owned construction trailer, the contractor would still make a charge against the project for equipment depreciation and small return on investment. Other Temporary Enclosures — Any temporary structures like tool sheds, on-site container storage, temporary barricades, railing, ramps, walls or protection would be a direct overhead cost.

Temporary Utilities — Hydrant meters, temporary water, heat, electricity, generators, fuel is a direct cost. The contractor may be responsible to provide all light and power for both workers in his direct employ and for that of outsourced trade contractors. This would include temporary power poles and transformers plus electrical energy usage. If the project requires heat for working in winter months, the cost for portable heat generation would be a direct project cost.

Check in on contractor forums and see what other people are experiencing. As your business progresses keep accurate financial records and revisit your margin calculations as needed.

Your salary should come out of your overhead, not your profit. If your business is succeeding, you can give yourself a bonus out of your profit.

Avoid errors in direct cost estimates. Mistakes in materials costs can eat away at your overhead and profit, leaving you with nothing or even costing you money to complete the job. So how much should a general contractor charge? Use overhead and profit margin as your main considerations.

To figure out how to make money as a general contractor, you need to understand how to calculate your. Keep in mind : Your profits do not automatically include your salary as the business owner. Ideally, your salary should be included as part of your overhead expenses.

Profit is money that belongs to the company and should get reinvested for business growth. That's the amount you bid, and the customer agreed to pay.

Calculating profit is all a bit complicated. You'll want to go over your numbers more than once to understand your overhead and profit margin and ensure that you're on track to make the money you want. So, how much should contractors charge? First, we need to figure out what the average profit margin for a general contractor is. In the construction business, gross margin has averaged While it helps to know these nationwide benchmarks, the more important consideration is your overheads and profits when it comes to setting prices.

It's a better business practice to quote per construction project than per hour. Doing so allows you to work out your overhead and profit margin, as well as the right markup, to ensure your business profitability. Also, it's always a good idea to raise your prices before you are desperate.

Instead, try to plan and give your customers a warning about your growth plans. Overhead costs are operating expenses for necessary equipment and facilities. Profit is what allows the GC to earn their living.

A general contractor oversees the entire construction project, hires the required trades carpentry, masonry, plumbing, electrical, etc. The longstanding rule is that whenever more than three trades are involved, a general contractor is needed.