Overhead and Profit Percentage
in Construction (2026)

The 10-and-10 rule

The 10-and-10 rule is the long-standing convention of adding 10% for overhead and 10% for profit on top of direct job costs. It is most commonly applied compounding: direct cost multiplied by 1.10 to recover overhead, then that subtotal multiplied by another 1.10 to build in profit. On a $100,000 direct cost job, that math lands you at $121,000 before tax.

The rule earned its ubiquity partly through the insurance restoration industry. Adjusters and contractors use it as a shared baseline when writing claims for general contractors coordinating subcontracted repair work, so it shows up in Xactimate line items and dispute resolution alike.

But 10-and-10 is a convention, not a law or an industry standard. A GC managing complex phasing on a tight urban site carries meaningfully more overhead than a one-trade specialty sub doing repeat commodity work. The rule is where the conversation starts, not where it ends.

• Classic formula: cost × 1.10 (overhead) × 1.10 (profit) = 1.21 × cost
• Widely used by insurers on restoration claims as a baseline
• A starting point — real O&P varies materially by market, scope, and risk

What overhead actually covers

Overhead in construction splits cleanly into two buckets. General overhead is everything it costs to keep your company open regardless of which jobs are running: office rent or mortgage, owner and staff salaries, accounting and legal fees, software subscriptions, company vehicles, general liability premiums, and equipment ownership costs. These bills arrive whether you have one project underway or ten.

Job-site overhead — also called general conditions — is the cost of supporting a specific project without being directly billable to a work item. Supervision wages, temporary power and lighting, site trailers, sanitation facilities, dumpsters, safety signage, and final cleaning all fall here. Some contractors estimate general conditions as a percentage of direct cost (typically 6–12%); others build them up line by line in the estimate.

Your overhead rate is the number that ties these costs back to your bids. The calculation is straightforward: divide total annual indirect costs by total annual direct, billable revenue. If your company spends $400,000 a year on overhead and bills $2,000,000 in direct labor and materials, your overhead rate is 20%. Every bid must carry that 20% or the business loses money even on a "profitable" year.

Underapplied overhead is one of the most common reasons contractors stay busy and still lose money. If bid volume drops mid-year, the same fixed overhead spreads across less revenue — and the effective rate climbs above what bids assumed.

Typical O&P ranges in 2026

Combined overhead and profit on commercial work most commonly runs between 15% and 25% above direct costs. That wide band exists because the driver variables — company size, project type, delivery method, and local labor market — pull in opposite directions. A design-build GC with an in-house design team and a dedicated preconstruction department carries far more overhead than a two-estimator specialty sub doing the same trade year after year.

Net profit alone — after overhead is fully recovered — typically lands in the 5–10% range on competitively bid work. Negotiated contracts, repeat clients, and specialty scopes with limited competition can push profit above 10%. Public hard-bid work, where price is the only selection criterion, trends toward the bottom of that range or below it when markets are slow.

Subcontractor markups on their own labor and material differ from GC overhead markups. When a GC marks up a subcontract, a 5–15% markup on the sub's invoice is typical to cover coordination, schedule management, and contract risk. That is separate from the GC's overall overhead rate applied across the project.

Markup vs. margin reminder

Markup and margin are not the same number, and confusing them is a reliable path to underbidding. Markup is calculated on cost; margin is calculated on revenue. A 20% markup means you add $20 to a $100 cost, yielding $120 in revenue — but your margin is only $20 / $120, or 16.7%. If you need to net a 20% margin, you have to mark up by 25%, not 20%.

The gap compounds when overhead and profit are applied sequentially. An estimator applying 10% overhead then 10% profit achieves a 21% markup total, and the margin on that is only about 17.4%. Running these numbers explicitly in your estimating sheet prevents the quiet erosion that shows up only when you close the books.

Labor burden deserves the same scrutiny before O&P enters the picture. The true cost of a field employee is typically 30–40% above their base wage once you add FICA, workers’ compensation, benefits, and paid time off. Bidding raw wages and applying O&P on top of understated labor is a second common leak. Contingency is a third, entirely separate line covering scope uncertainties and differing site conditions — not the cost of running the business.

• 20% markup = 16.7% margin — to net 20% margin, mark up by 25%
• Labor burden often +30–40% above base wage; build it in before applying O&P
• Contingency is a separate risk allowance, not part of overhead or profit

Questions estimators actually ask