Ask ten AGC of Massachusetts contractor members what percentage they add to a bid for overhead, and you’ll get ten different answers. One goes with 10% because “that is what we have always done,” while another responds “15% is the industry standard.”

A majority of them haven’t changed that number since their very first bid.

In construction, a huge percentage of your top-line revenue never even belongs to you. In 2026, Siana reported that U.S. commercial builders send 80-90% of their revenue to subcontractors, material suppliers, and labor.
[https://www.sianamarketing.com/resources/average-construction-profit-margin-2026]

The remaining 10-20% has to cover all the other costs of running operations.

These “overhead” costs include rent, utilities, software, admin salaries, marketing, insurance, and anything else that keeps the organization running but isn’t linked to a specific job.

At Munitz & Co., we have seen some of our clients join us starting with only 5% – an item that we quickly addressed with their business as explained in this article.  
 

The Revenue Illusion

The massive amounts of revenue generated by construction projects creates a serious problem for contractors, especially as they scale. Growth comes with a lot of overhead. In fact, expenses usually scale faster than revenue does before stabilizing. This happens every time a business hits a growth phase.

It is common for contractors to get carried away with exciting and large revenue numbers.  We all have seen a talented, emerging contractor, who gets energized and emboldened by a current year forecast of $9 million, that decides it is now time to go “all in” and build out a $1 million dollar showroom and throw a massive opening party. This is way too early. That $1 million was meant to cover his overhead for the year.

The contractor knew that, but it didn't click.

I call it The Revenue Illusion.

In his head, he ran a $9 million ‌company and was ready to spend like one. But in reality, he had $900,000 or 10% of the $9 million to run his company’s business.
 

Your Overhead Rate

I advise my clients to find their Overhead Rate.

Don’t rely on an arbitrary number.

The formula is simple:

(Total Overhead ÷ Total Revenue) x 100

Pull your financial statements from the last several years and add up all your overhead expenses. Divide that by total revenue, then multiply by 100.

Say you brought in $20 million in revenue and spent $2.5 million on overhead:

2,500,000 ÷ 20,000,000 = 0.125
 0.125 x 100 = 12.5

Add 12.5% to all your bids to ensure your jobs are profitable on a company level.

To keep up, I recommend recalculating this number annually. One year is enough time to get an average ‌across the different seasons.
 

The Human Bias

They say that ‌numbers don’t lie.
But people do.

Even when they don’t mean to. It’s a simple fact that humans aren’t perfect, and despite all the software or AI you use, it ultimately hinges on humans putting data in. If you don’t train your team to categorize indirect costs and direct job expenses correctly, you’ll be making all your decisions off weak data.

Let’s say your PM goes to record his hours.

Some logs are simple. Some require judgement. Say he spent an hour drafting a status report for ABC job. Is that tied to ABC project or should that go into the overhead bucket?
When faced with a decision like this, leadership’s behavior can create an unconscious bias that influences the PM.

As an example, if leadership is pushing for better profit margins or recognizing PMs for profitable projects, he'll put it in the overhead category. If leadership has been on his back about moving projects along, he will try to log as much as he can to the job.
 

The Double-Filter Test

I saw the need for a framework to guarantee accuracy and consistency in coding labor hours as a project or overhead expense.

So, we had our clients test out different ideas with their team until we came up with the easiest method.

Easy is the key.

The challenge arises when your team member has to pause and make a call where a specific task is borderline project-oriented and general business. The human instinct is to save time and make a snap judgement. Having an easy framework that takes the thinking out of the decision is the only way to override whatever bias is strongest that day.

Your team member only needs to answer two questions:

Q1: Would I have done this task if this specific project did not exist?

Yes→Overhead
No→Go to Q2

Q2: Who is this for?

Your company/management→Overhead
Client/Job→Direct

The double filter works to capture all the edge cases.
 

The Edge Cases

Let’s look at some samples.

You spent an hour drafting a status report on ABC Job.

“Would I have done this task if this specific project did not exist?”
No.

“Who is this for?”
My boss.

Book this as overhead.

Here’s another:

You had an all-hands-on-deck meeting with the team on ABC job.

“Would I have done this task if this specific project did not exist?”
No.

“Who is this for?”
The job.

Book this as a direct cost.
 

Documenting & Training

Another feature of The Double-Filter Test is that it’s easy to teach and easy to remember.

I recommend adding this framework to your onboarding materials and reviewing it during your annual team training. Walk through real-world scenarios together. Use actual timesheets and logs to show how the filter applies to tricky line items.

This way you stay consistent and can rely on the data you work with every day.
 

Making It Work

Your Overhead Rate is unique to your construction business. 

It's gold waiting to be mined from your financial statements.

But that only works if the data going in is accurate and trustworthy. A category error here and there chips away at the quality of your data. That's how accurate cost classification, a calculated overhead rate, and a simple framework like The Double-Filter Test all go hand in hand. 

When your team follows the process, you get consistency, accuracy in bids, and the confidence to make critical decisions.