Contractor Business Guide
The 10 and 10 Rule for Contractors: Does It Still Work?
The “10 and 10 rule” adds 10% for overhead and 10% for profit on top of direct costs. While simple, this traditional method often underestimates what modern contractors actually need to stay profitable.
Quick Answer
The 10 and 10 rule means adding 10% overhead + 10% profit to direct costs. On a $10,000 job, that equals $12,100 price. While easy, most contractors need 25-40% overhead and 15-25% profit to actually make money. 10 and 10 may work for insurance restoration or high-volume commercial work.
How the 10 and 10 Rule Works
The 10 and 10 rule is a simple contractor pricing formula:
Calculate Direct Costs
Add materials + labor + subcontractors for the job. Example: $10,000
Add 10% Overhead
$10,000 × 1.10 = $11,000. Covers business operating costs.
Add 10% Profit
$11,000 × 1.10 = $12,100 final price. Your profit is $1,100.
Total markup: 21% (10% + 10% compounded). This gives you approximately 17.4% gross margin on the selling price.
Why 10 and 10 Often Falls Short
Most Contractors Have More Than 10% Overhead
Industry data shows typical contractor overhead is 25-45%, not 10%. Using only 10% means you are paying overhead costs out of your own pocket instead of recovering them from jobs.
The Real Math
If your actual overhead is 35% but you only charge 10%:
- On a $10,000 direct cost job, you need to recover $3,500 in overhead
- Using 10 and 10, you only recover $1,000
- You lose $2,500 in unrecovered overhead per job
- Your “profit” of $1,100 actually becomes a $1,400 loss
When 10 and 10 Still Works
The 10 and 10 rule can work in specific situations:
| Situation | Why It Works |
|---|---|
| Insurance restoration | Xactimate pricing includes industry-standard O&P. Adjusters expect 10 and 10. |
| High-volume commercial | Large scale offsets thin margins. Efficiency and volume compensate. |
| Very low overhead business | Solo operators working from home with minimal expenses may actually have 10% overhead. |
| Sub-contracting | When working under a GC who handles sales, admin, and liability. |
Modern Overhead and Profit Guidelines
For most residential and commercial contractors, these ranges are more realistic:
| Company Size | Overhead Allocation | Profit Target | Total Markup |
|---|---|---|---|
| Small (under $500K) | 25-35% | 15-20% | 44-62% |
| Mid-size ($500K-$2M) | 35-45% | 12-18% | 51-71% |
| Large ($2M+) | 40-50% | 10-15% | 54-73% |
Know Your Actual Numbers
Calculate your real overhead percentage before using any rule of thumb. Your actual overhead rate might be higher or lower than average. Pricing based on your real numbers beats any generic formula.
Moving Beyond 10 and 10
To price profitably:
- Calculate your actual overhead rate – Total overhead ÷ revenue
- Add true overhead to each job, not just 10%
- Target realistic profit of 15-25% for sustainability
- Track job costs to verify your pricing works
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