Calculating Overhead

Overhead is a percentage that is added to the cost of each project to cover general business expenses that can't be assigned to a specific project.

Overhead should not be confused with markup (sometimes known as gross profit). Markup is generally a much larger percentage that also includes supervision, profit, and other costs that are itemized separately in BidMagic.

Rather than use one general markup percentage, BidMagic breaks your operating costs down into several specific items.

The BidMagic estimating software program uses detailed costs instead of a single markup percentage for several reasons:

1. It's more accurate, since you look at each cost individually.
2. Most clients would rather pay for several specific itemized costs rather than a larger markup figure-- even if it ends up being the same final price!
3. Itemizing your actual costs lets you job cost more accurately.

If you currently use a markup percentage and don't want to itemize overhead, profit, contingencies and other similar costs, follow these steps:

1. Enter the markup percentage into the Overhead field, and set the Net Profit field to zero. NOTE: As an alternative, enter the markup percentage into the Net Profit field, and set the Overhead field to zero.
2. Set the value of any other costs that are already included in the markup percentage to zero. This may include items such as supervision, contingencies, inflation, and interest, depending on what your markup percentage actually covers.

Calculating Overhead Percentage

To have BidMagic calculate the overhead percentage for your business, follow these steps:

1. Turn on the Use Overhead Calculator button.
2. Gather your financial records from some time interval in the recent past--the previous year, the past six months, or some other period for which you have complete records. HINT: If accurate cost records are not available, use an estimate of costs--but we highly recommend that you start using a job cost accounting system, so you 'll have better records in the future!
3. Calculate the cost of all expenses that can't be assigned to a particular job (see the next section). Enter them into the Overhead fields on the left.
4. Calculate the total amounts on which to apply the overhead percentage (see pages 153-155). Enter them into the Hard Costs or Total Costs fields on the right.
5. BidMagic will automatically calculate your overhead percentage.

If you prefer to calculate an overhead percentage yourself, follow these steps:

1. Turn off the Use Overhead Calculator button.
2. Add up your total overhead costs (see the next section).
3. Add up the total amount on which to apply the overhead percentage (see pages 153-155).
4. Divide the number from step 2 by the number from step 3, and multiply it by 100 to convert it to a percentage.
5. Enter the calculated percentage directly into the Overhead field.