Computing Overhead and Profit

How to Compute Overhead & Profit

The BidMagic estimating software program gives you three different ways to calculate overhead and profit percentages--you can base them on hard construction costs only, on hard and soft costs, or on all your business costs. Which you use depends on how you prefer to look at your business costs.

To specify which method you'd like to use, click on one of the buttons at upper right.

If you choose Hard Costs Only, the overhead and profit percentages will be based on the total of all Specification items. The advantages of this method are:

• It is easier to use for change orders and allowances, since overhead and profit can be applied as a simple multiplier.
• It works well for 'time and materials' billing.
• It is easier to compute.

If you choose Hard and Soft Costs, the overhead and profit percentages will be based on the total of all Specifications items, plus Contingencies and Soft Costs (except for sales tax and broker/salesperson commissions). This method has most of the advantages (and disadvantages) of both the Hard Costs Only and All Costs options.

If you choose All Costs, the percentages used for overhead and net profit will be based on the total dollar volume of business, which includes all costs (including overhead and profit). The advantages of this method are:

• It is the method used to compute overhead and profit in retail sales, and in most other businesses where final selling price is the most important number.
• It produces smaller overhead and profit percentages, so the client is less likely to think them unreasonably high.

NOTE: The net dollar cost for overhead and profit will be the same, no matter which computation method you use.