The quick guide to calculating overhead costs in construction

TLDR

As construction businesses grow, estimating becomes more complex. Calculating and allocating overhead costs correctly ensures your pricing stays profitable as you add crews, staff, and office expenses.

Understanding Overhead Costs in Construction

Many small contractors start out estimating in a simple way. When you are a one person operation, you decide what you want to earn per hour, add material costs, apply a markup, and send the quote.

As your construction business grows, this approach no longer works. Once you expand beyond a single crew, you need to separate direct costs from overhead costs to protect your margins and ensure long term profitability.

What Are Overhead Costs in Construction

When you reach the stage where you want to expand your construction business, estimating needs to change.

Direct labor costs in construction are expenses that are directly tied to work happening on the job site.

These typically include:

• Field labor wages
• Vehicles used on site
• Fuel
• Tools and equipment
• Workers compensation and job specific insurance

Overhead costs, on the other hand, are expenses that are not directly tied to a specific job site but are still required to run your business.

Once you have an office, administrative staff, or dedicated sales and estimating resources, these costs must be accounted for in every estimate, even though they are not visible on site.

How to Calculate Your Construction Overhead Costs

The most effective way to calculate overhead costs is to look at what you spend each month on expenses that are not directly related to on site production.

Common construction overhead costs include:

• Office or shop rent
• Storage yard rental
• Administrative and sales staff wages
• Office utilities
• Internet and phone services
• Stationery and office supplies
• Industry memberships and association fees
• Legal and accounting fees
• Recruitment costs
• Advertising and marketing expenses

The key rule is simple. If the expense is not directly involved in building the project on site, it likely belongs in your overhead category.

Splitting Overhead Costs Across Crews

One important thing to understand about overhead costs is that they usually decrease per crew hour as your business grows.

Most overhead expenses do not increase at the same rate as your field operations. For example, you typically still need one office, one bookkeeper, and one estimating process whether you run one crew or five.

As you add crews, your overhead costs are spread across more productive hours, reducing the overhead burden per job.

This is why tracking overhead accurately is critical. Once you understand your total overhead, you can distribute it evenly across your crews to ensure every estimate carries its fair share of business costs.

Why Better Estimating Requires Better Software

Spreadsheets, notebooks, and manual calculations can work when you are just starting out.

Once you are managing multiple crews, tracking overhead costs, and producing consistent quotes at scale, those tools quickly become limiting.

Residential construction estimating software like Bolster allows you to:

• Separate direct costs and overhead cleanly
• Apply overhead consistently across all estimates
• Adjust rates as your business grows
• Protect margins without constantly recalculating formulas

You only need to set these calculations up once, and every future quote automatically reflects the correct overhead allocation.

If your construction business has reached this turning point, it may be time to modernize how you estimate. Bolster helps contractors build accurate, profitable quotes without complexity, so your business can grow with confidence.