What Overhead Percentage Should a Contractor Use?

Ask ten contractors what overhead percentage they use and you'll get ten different answers — mostly guesses. The correct answer isn't a number you find online. It's a number you calculate from your own business expenses. But knowing the industry benchmarks and understanding what overhead actually includes is the starting point.

This article walks through what overhead is, what the data says by trade, how to calculate your real rate, and how to apply it to every job.

What Counts as Contractor Overhead?

Overhead is every business cost that is not a direct job cost. Direct job costs are labor (your time and any employees' time working on the job) and materials (what you bought specifically for that job). Everything else is overhead.

For most trade contractors, overhead includes:

• Vehicle expenses — loan or lease payments, insurance, registration, oil changes, tires, repairs, and depreciation
• Tools and equipment — purchase costs, replacement costs, repairs, and depreciation on tools you own
• General liability insurance — required for nearly every commercial and many residential jobs
• Workers' compensation insurance — if you have employees or are required to carry it solo in your state
• Business software and subscriptions — estimating software, invoicing tools, scheduling apps, accounting software
• Marketing and advertising — your website, Google ads, yard signs, business cards, Angi or HomeAdvisor leads
• Phone and communications — your business phone line, data plan
• Office and administrative costs — whether a home office or separate space, plus supplies
• Non-billable time — hours spent writing estimates that don't convert, following up on invoices, scheduling, and managing the business
• Training and licensing fees — continuing education, license renewals, trade association dues
• Accounting and legal — bookkeeper, CPA, any business attorney fees

Notice what's not on that list: fuel and drive time charged directly to jobs. If you're tracking job-specific travel costs separately (which you should be), those are direct costs, not overhead.

Industry Benchmarks by Trade

The widely cited range for contractor overhead is 15–25% of direct job costs. But that range varies meaningfully by trade and business size:

Trade	Typical Overhead Range	Notes
Plumber / HVAC	18–28%	Higher due to specialty tools, service vehicles, licensing costs
Electrician	18–25%	Licensing, specialty meters, permit coordination time
Roofer	15–22%	High equipment cost but simpler material management
General Contractor	10–20%	GC fee typically covers coordination overhead separately
Painter	12–20%	Lower tool overhead, but marketing and non-billable time adds up
Landscaper	15–25%	Equipment-heavy; mowers, trailers, irrigation tools
Handyman	15–22%	High non-billable time ratio; many short jobs with disproportionate admin

These are ranges, not targets. Your actual rate depends on how you run your business, how much equipment you carry, how many non-billable hours you log, and how efficiently you convert estimates to jobs.

How to Calculate Your Actual Overhead Rate

The right way to find your overhead rate is to calculate it from your own financial records — not to pick a number from a chart. Here's the method:

1. Pick a time period. Use the last 3 months or the last full calendar year. Three months is faster; a full year smooths out seasonal variation.
2. Add up your total revenue for that period.
3. Subtract your direct job costs — all labor costs and all material costs that were billed directly to specific jobs.
4. Add up every other business expense for that period. This is your overhead total.
5. Divide overhead total by direct job costs. The result, multiplied by 100, is your overhead rate.

This means for every dollar of direct job cost, you're spending about 21 cents on overhead. That 21 cents needs to be in your price on every single job.

Why Contractors Underestimate Overhead

Studies of trade contractor businesses consistently show the same pattern: when contractors are asked to estimate their overhead rate before calculating it, they guess 5–8 percentage points lower than their actual rate. Here's why:

• Invisible costs don't feel like job costs. The monthly insurance payment doesn't feel connected to the job you're quoting on Tuesday. But it is — it's a real cost of being in business.
• Non-billable time is forgotten. The two hours spent writing an estimate that didn't convert, the afternoon spent chasing an unpaid invoice, the hour on the phone with a supplier — none of this shows up in your job cost records, but it's all real overhead.
• Tools and equipment are amortized. You paid $4,000 for a diagnostic tool two years ago. You're not spending money on it now, so it feels free. But it's depreciating and will need to be replaced — that cost belongs in your overhead rate.
• Mixed personal and business expenses. If your work vehicle is also your personal vehicle, it's easy to undercount vehicle overhead. Same with your phone.

How to Apply Overhead to Your Bids

Once you know your overhead rate, applying it is straightforward. Add it as a percentage of your direct costs (labor + materials) on every job.

Example: Job with $500 in direct labor and $800 in materials = $1,300 direct cost. At 20% overhead: $1,300 × 0.20 = $260 overhead. Your cost basis before profit and taxes is $1,560.

The JobProfitCalc calculator has a dedicated overhead field where you enter your overhead percentage and it calculates the dollar amount automatically as part of your complete job price. You can update it any time your costs change.