Calculating True Profit on Your Houston Construction Jobs

The truck is gassed up before the sun rises. The day is a blur of managing crews, checking on subcontractors, solving unexpected problems on-site, and putting out fires. Invoices go out and checks come in. From the outside, and even from the driver's seat, business looks busy. Business looks good.

But a nagging question keeps you up at night. With all this activity, with all this money moving, are you actually making a profit?

For many construction and trades professionals in Houston, this uncertainty is a constant source of stress. You are experts at your craft, whether it's framing, plumbing, or general contracting. You are not necessarily expert bookkeepers. You bid new projects based on a combination of gut feeling, a quick tally of materials, and maybe what you hear a competitor is charging. You might be winning bids, but you might also be winning the privilege of working for free, or worse, at a loss.

The fear is that you're just trading dollars, working incredibly hard simply to break even. It’s time to trade that fear for clarity. Calculating the real profit on each job is not just an accounting exercise. It is the most powerful tool you have for building a sustainable, successful business. This guide will walk you through the process, step by step.

The Basic Equation is Deceptively Simple

At its core, the formula for profit is straightforward.

Profit=Revenue−Expenses

Revenue is the easy part. It is the total amount the client pays you for the completed job, the number on the final invoice. The real challenge, and where most contractors get into trouble, is in accurately calculating the Expenses side of that equation. To find your true profit, you must account for every single cost associated with completing that project. These costs fall into two main categories: direct costs and indirect costs.

Step 1: Tally Your Direct Costs

Direct costs are the expenses you can easily and directly tie to a specific project. If you are building a deck for a client on Main Street, any cost incurred solely for the Main Street deck is a direct cost. Think of these as the hands-on expenses of the job.

• Materials: This is the most obvious category. It includes lumber, concrete, drywall, pipes, wires, paint, fasteners, and anything else that becomes a physical part of the project. Meticulous tracking is essential. A pile of leftover materials from a previous job that gets used on a new one still has a cost that needs to be assigned.
• Labor: This is more than just the hourly wages paid to your crew while they are on that specific job site. The true cost of labor includes payroll taxes (like Social Security and Medicare), workers' compensation insurance, and any benefits you provide, such as health insurance or retirement contributions. You need to calculate a "fully burdened" labor rate for each employee to get an accurate picture. For example, an employee earning $25 per hour might actually cost your business $32 per hour once these additional expenses are factored in. It is that $32 per hour figure you must use in your job cost calculation.
• Subcontractors: The invoices from your electricians, plumbers, HVAC specialists, and other subcontractors are direct costs. These are usually straightforward to track as they are billed on a per-job basis.
• Equipment Rentals: The cost of renting a specific piece of equipment for a project, like a scissor lift or a concrete mixer, is a direct cost.
• Permits and Fees: Any fees paid to the City of Houston or other authorities for project-specific permits and inspections are direct costs.

Once you sum up all these expenses, you can calculate your Gross Profit.

Gross Profit=Revenue−Direct Costs

This is an important number. It tells you how much money you have left over after paying for the job's immediate costs. But it is not your net profit. It does not tell the whole story.

Step 2: Account for Your Indirect Costs (Overhead)

Indirect costs, often called overhead, are the expenses that are necessary to run your business but are not tied to any single job. These are the costs you pay whether you have one project going or ten. Neglecting to account for overhead is the single biggest reason contractors miscalculate their profitability and underbid jobs.

Examples of indirect costs include:

• Office rent and utilities
• General liability and business insurance
• Truck payments, fuel, and maintenance
• Salaries for office staff (or your own salary if you pay yourself a fixed amount)
• Marketing and advertising costs
• Phone bills and internet service
• Accounting and legal services
• Software subscriptions
• Tools and equipment that you own (depreciation)

These costs are real, and every single job you complete must bear its fair share of them. So, how do you assign a portion of your monthly office rent to a two-week bathroom remodel? You do it by calculating an overhead allocation rate.

While there are several ways to do this, a common method is to base it on your total direct labor costs.

1. Calculate Total Annual Overhead: Add up all your indirect costs for the last 12 months. Let's say you spent $100,000 on overhead.
2. Calculate Total Annual Direct Labor Costs: Add up the total cost of your direct, on-site labor for the same 12 months. Let's say this was $400,000.
3. Find Your Overhead Rate: Divide your total overhead by your total direct labor costs.

Overhead Rate=Total Annual Direct Labor CostsTotal Annual Overhead​

Overhead Rate=$400,000$100,000​=0.25 or 25%

This 25% is your overhead allocation rate. It means that for every dollar you spend on direct labor for a job, you need to add another 25 cents to cover that job's share of the company's overhead.

Step 3: Putting It All Together for Net Profit

Now you have all the pieces to find your true profit, or Net Profit. Let's walk through a hypothetical kitchen remodel project.

Project Revenue: $50,000

Direct Costs:

• Materials: $20,000
• Direct Labor: $12,000
• Subcontractors (plumbing, electrical): $8,000
• Permits: $500
• Total Direct Costs: $40,500

First, calculate the Gross Profit:

Gross Profit=$50,000−$40,500=$9,500

Next, calculate the job's share of indirect costs using your 25% overhead rate.

Indirect Costs for Job=Direct Labor Costs×Overhead Rate

Indirect Costs for Job=$12,000×0.25=$3,000

This project needs to contribute $3,000 to cover its share of your company's overhead.

Finally, calculate the Net Profit by subtracting these indirect costs from your Gross Profit.

Net Profit=Gross Profit−Indirect Costs for Job

Net Profit=$9,500−$3,000=$6,500

This $6,500 is the real profit your business earned from this job. It is the money that contributes to company growth, owner profit, and future investment.

From Calculation to Confident Bidding

Understanding your true profit on past jobs is what transforms your future bidding process from a gamble into a strategy. When you prepare a bid for a new project, you will estimate your direct costs just as before. But now, you can add a line item for overhead using your calculated rate.

From there, you can add your desired profit margin. If you want to make a 15% profit on the kitchen remodel, you would add that on top of your total costs (direct and indirect). This data-driven approach ensures that every job you win is actually a win for your bottom line.

Knowing your numbers allows you to see which types of jobs are most profitable for your company. You might discover that small, quick projects are more lucrative than large, complex ones, or vice-versa. This knowledge empowers you to focus your marketing efforts and choose projects that will build a stronger, more resilient business.

The feeling of being busy is not the same as the reality of being profitable. By moving beyond gut feelings and implementing a system of job costing, you replace anxiety with control. You gain the clarity needed to make strategic decisions, bid with confidence, and ensure that all your hard work is actually building the successful Houston business you deserve.