{
  "slug": "overhead-and-profit-allocation",
  "title": "Overhead & Profit Allocation Calculator",
  "heading": "Overhead & Profit Allocation Calculator",
  "category": "financial",
  "url": "https://www.revenuelab.fyi/toolbox/overhead-and-profit-allocation",
  "summary": "Split company overhead recovery and profit target across a bid.",
  "description": "Overhead and profit (O&P) are distinct concepts that estimators often blur together: overhead recovery is what you need to add to every job just to cover fixed company costs (office rent, admin salaries, insurance, vehicles) that exist whether or not this particular job runs, while profit is the actual return owners expect for taking on the risk of the work. This calculator starts from your annual fixed overhead budget and projected annual revenue to derive an overhead recovery percentage, then adds your target profit margin on top, and shows how that combined O&P rate applies to a specific job's direct cost — critical because using an O&P rate calibrated for a different revenue year (say, a slow year with less revenue to spread overhead across) on a bid for a busy year will overprice you out of competitive work, and vice versa.",
  "formula": "Overhead recovery % = Annual fixed overhead ÷ Projected annual revenue. Bid price = Direct cost × (1 + Overhead%) × (1 + Profit%).",
  "dateModified": "2026-09-30",
  "run_url": "https://www.revenuelab.fyi/api/public/calc?tool=overhead-and-profit-allocation",
  "inputs": [
    {
      "id": "annualOverhead",
      "label": "Annual fixed overhead",
      "kind": "number",
      "hint": null,
      "default": 480000,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "projectedRevenue",
      "label": "Projected annual revenue",
      "kind": "number",
      "hint": null,
      "default": 6500000,
      "unit": "$",
      "min": 1,
      "max": null
    },
    {
      "id": "targetProfitPct",
      "label": "Target profit margin",
      "kind": "number",
      "hint": null,
      "default": 8,
      "unit": "%",
      "min": 0,
      "max": 30
    },
    {
      "id": "jobDirectCost",
      "label": "This job's direct cost",
      "kind": "number",
      "hint": null,
      "default": 850000,
      "unit": "$",
      "min": 0,
      "max": null
    }
  ],
  "outputs": [
    {
      "id": "bidPrice",
      "label": "Bid price with O&P applied",
      "format": "currency",
      "hint": null,
      "primary": true
    },
    {
      "id": "overheadPct",
      "label": "Calculated overhead recovery rate",
      "format": "percent",
      "hint": null,
      "primary": false
    },
    {
      "id": "opDollarAmount",
      "label": "Total O&P dollars added",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "withOverhead",
      "label": "Cost with overhead only (pre-profit)",
      "format": "currency",
      "hint": null,
      "primary": false
    }
  ],
  "worked_example": {
    "inputs": [
      "Annual fixed overhead: 480000 $",
      "Projected annual revenue: 6500000 $",
      "Target profit margin: 8 %",
      "This job's direct cost: 850000 $"
    ],
    "outputs": [
      "Bid price with O&P applied: $985,790.77",
      "Calculated overhead recovery rate: 7.38%",
      "Total O&P dollars added: $135,790.77",
      "Cost with overhead only (pre-profit): $912,769.23"
    ]
  },
  "how_to": {
    "title": "How to use this",
    "steps": [
      "Enter annual fixed overhead ($).",
      "Enter projected annual revenue ($).",
      "Enter target profit margin (%).",
      "Enter this job's direct cost ($).",
      "Read your bid price with o&p applied on the right — it updates as you type.",
      "Hit Share to keep the scenario or send it to someone."
    ]
  },
  "scenarios": [
    {
      "name": "Conservative",
      "description": "Lower-end numbers — what if things land soft?",
      "values": {
        "annualOverhead": 290000,
        "projectedRevenue": 3900000,
        "targetProfitPct": 4.8,
        "jobDirectCost": 510000
      }
    },
    {
      "name": "Typical",
      "description": "Defaults — the most common real-world setup.",
      "values": {
        "annualOverhead": 480000,
        "projectedRevenue": 6500000,
        "targetProfitPct": 8,
        "jobDirectCost": 850000
      }
    },
    {
      "name": "Ambitious",
      "description": "Higher-end numbers — what if things really pop?",
      "values": {
        "annualOverhead": 770000,
        "projectedRevenue": 10400000,
        "targetProfitPct": 12.8,
        "jobDirectCost": 1360000
      }
    }
  ],
  "limitations": [
    "Results are estimates before tax, fees, and inflation unless an input explicitly covers them.",
    "Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.",
    "This is educational maths, not financial advice. Check anything contractual with the lender or your accountant."
  ],
  "faq": [
    {
      "q": "What's a typical overhead recovery percentage for a mid-size contractor?",
      "a": "Most commercial contractors run 8-15% overhead recovery depending on company size and revenue volume — larger contractors with more revenue to spread fixed cost across often land at the lower end, while smaller companies with proportionally higher fixed admin cost relative to revenue run higher. Recalculate this annually against your actual revenue projection, not a static historical number."
    },
    {
      "q": "Why should overhead recovery rate change year to year?",
      "a": "It's a ratio of fixed cost to projected revenue, so if you're projecting a slower year (less revenue to absorb the same fixed overhead), the percentage needs to rise on each job to still cover total overhead. Using last year's overhead percentage on this year's bids during a revenue downturn will leave real overhead dollars uncovered by year end even if every individual job looked profitable on paper."
    },
    {
      "q": "Is profit margin applied before or after overhead in the calculation?",
      "a": "This calculator applies profit as a percentage on top of cost-plus-overhead, which is standard practice, but some contractors instead target a specific profit percentage of the final bid price (gross margin) rather than a markup on cost — these produce different dollar results at the same stated percentage, so confirm which convention your estimating team and job costing system actually use."
    },
    {
      "q": "What happens if actual overhead comes in higher than budgeted mid-year?",
      "a": "If overhead runs over budget partway through the year, either revenue needs to grow to keep the recovery percentage on track, or the overhead percentage needs to be revised upward on remaining bids for the rest of the year. Companies that don't revisit this mid-year often discover at year-end reconciliation that overhead wasn't fully recovered across the book of work, quietly eating into actual profit."
    }
  ],
  "related": [
    "https://www.revenuelab.fyi/toolbox/general-contractor-fee-calculator",
    "https://www.revenuelab.fyi/toolbox/general-conditions-percentage",
    "https://www.revenuelab.fyi/toolbox/direct-vs-indirect-cost-ratio"
  ],
  "license": "CC-BY-4.0",
  "citation": "RevenueLab — Overhead & Profit Allocation Calculator (https://www.revenuelab.fyi/toolbox/overhead-and-profit-allocation)"
}