Turn job cost into a bid by adding overhead and profit. The cleanest method divides direct cost by one minus the combined markup, so the markup is a true percentage of the final price.
The example
$10k cost, 10% OH, 10% profit.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Direct cost | 10000 |
| 3 | ÷ (1 − 0.20) | → $12,500 |
The formula
The formula:
How it works
How it works:
- Direct cost is materials + labor + equipment + subs for the job.
- Dividing by
(1 - overhead% - profit%)makes O&P a share of the final price — the correct way. - Marking up cost by
×(1 + markup)instead understates margin (markup vs margin again). - A $10k job at 20% combined O&P bids at $12,500, not $12,000.
Markup on cost ≠ margin on price. Adding 20% to a $10k cost gives $12,000 — but that’s only a 16.7% margin, short of your 20% target. To actually keep 20% of the bid, divide: 10000 / 0.80 = $12,500. This single distinction is where contractors quietly lose profit.
Try it: interactive demo
Direct cost, overhead %, profit %.
Variations
Markup on cost (compare)
The other method:
Overhead dollars
OH portion:
Profit dollars
Profit portion:
Pitfalls & errors
Divide for margin. Use /(1 - O&P) to hit a true margin target.
Percents as decimals. 10% is 0.10 — mind the cell format.
O&P below 100%. If overhead + profit ≥ 100%, the denominator is zero or negative.
Practice workbook
Frequently asked questions
How do I add overhead and profit to a bid in Excel?
Why divide instead of multiply?
What's the difference from markup on cost?
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