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
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
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)