“We’ve been landing plenty of jobs,” he said, “but our profits still don’t look right. We’re pricing competitively, watching labor costs, managing materials—but something’s not adding up.”
After a few questions, I knew exactly what was missing: overhead allocation 💸.
This isn’t unusual. In construction, most owners and even CFOs are laser-focused on direct job costs—labor, materials, subs. But what often gets overlooked are the indirect costs: your office rent, admin staff, software subscriptions, equipment leases, and everything else it takes to run the business.
📊 What Is Overhead Allocation?
Overhead allocation is the process of spreading those indirect costs across your projects so you can get a true picture of job profitability. If you’re not doing it—or doing it inconsistently—you’re basically flying blind 🕶️.
Here’s the thing: a project that looks profitable on paper could be barely breaking even once you account for overhead.
🏗️ Real-World Example: Alpha Builders
Take the case of Alpha Builders, a fictional firm based on a few real-life examples I’ve worked with.
They had three active jobs and $90,000 in monthly overhead. They weren’t allocating that overhead to their job costing, so the jobs all looked like they were pulling great margins.
But when we layered in overhead—divided evenly at $30,000 per project—those profit margins shrank. One even turned negative 🚨.
📞 What Happened with the CFO?
In my call with the CFO, we walked through their cost structure and discovered their team was only tracking labor and materials in their job costing reports. Their $1.5M project looked like it was running a 22% profit—until we added the $80K of monthly overhead they hadn’t been allocating. Real margin? Closer to 10% 📉.
To his credit, the CFO was quick to act. They implemented an overhead allocation model based on direct labor hours and started getting clearer insights almost immediately. Now they’re not just winning bids—they’re winning profitable bids ✅.
📌 Why It Matters
- ✅ Better Bidding: You don’t have to guess what your markup should be. You know what it takes to cover your overhead and hit your target margin.
- 📈 Smarter Planning: You can spot unprofitable projects early and shift resources to the ones that generate real returns.
- 💰 Cash Flow Clarity: When overhead is accounted for, your job costing aligns with reality—not just hope.
🛠️ Simple Ways to Start
If you’re new to this, here are a few ways to start allocating overhead:
- 📊 As a % of Direct Labor – Simple and effective, especially if labor is your biggest cost driver
- ⏱️ Per Labor Hour – Useful for firms that track time closely
- 📦 As a % of Total Project Costs – Better for large firms with consistent cost structures
Whatever method you choose, the key is consistency 🔁.
🏁 Final Thoughts
The CFO I spoke with isn’t alone. I’ve seen too many construction firms work hard, win jobs, and still struggle financially—simply because they aren’t seeing the full picture.
Overhead isn’t just “back office stuff.” It’s the cost of doing business. And if you’re not including it in your job costing, your numbers are lying to you 📉.
📣 Let’s Talk About Your Numbers
Not sure where to start? I help construction firm owners and CFOs bring clarity to their books—so they can stop guessing and start scaling.
👉 Let’s have a conversation about your overhead, your bids, and your margins.
