To recover indirect G&A (general and administrative) overhead, material costs (with tax) are usually marked up 10%, equipment costs are marked up 25%, subcontractors costs are marked up 5% and direct labor (including labor burden) is marked up by a calculated percent usually ranging from 35 to 85%. Net profit margin is then added to the sum total of these four items. The mathematical formula is as follows:

((material costs X 1.1) + (equipment costs X 1.25) + (subcontractor costs X 1.05) + (direct labor costs X 1+ 35 to 85%)) + net profit = Price

Differential Markup
Labor, material and subs are each marked up with a different percentage.
Usually labor is very heavily burdened with gross profit.
$65,000 Labor X 100% or 2.0 mark up = $130,000
$17,000 Subs X 30% or 1.3 mark up = $93,000
$70,000 Materials X 10% or 1.1 mark up = $77,000
TOTAL $300,000
This system will allow Joe to earn more gross profit on heavy
labor jobs and less on light labor jobs.

see also Dual Overhead Recovery System (DORS)

J. Jerrald Hayes
I am ex-architectural woodworker and general contractor turned IT, Business and Project Management consultant, software developer wannabe senior division triathlete and ski racer, Yankee fan and founder of Paradigm-360.com, 360 Difference Mac4Construction.com,iOS4Construction.com and now TheBuildingAndRemodelingWiki.com too.
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