Direct cost vs overhead

Direct costs and overhead are the two halves of what a job actually costs a building business, and keeping them straight is the difference between a quote that makes money and one that quietly loses it.

Direct costs (also called job costs or cost of works) are the costs you can tie to a specific job:

Materials for that job
Subcontractors on that job
Site labour, and your own time on the tools for that job
Plant and equipment hire for that job
Site-specific costs (skip bins, temporary fencing, site power)

If the job did not happen, you would not spend the money. That is a direct cost.

Overhead (indirect costs) are the costs of running the business that are not tied to any one job:

Office or yard rent, power, phone, internet
Admin and estimating staff
Business insurances, licences, registrations
Vehicles, software subscriptions, accounting fees, marketing
Your wage when you are quoting or running the business rather than on the tools

You pay overhead whether or not a particular job is on.

Why it matters for pricing: you cannot just add a margin to direct costs and call it a quote. The price has to recover a share of overhead and a profit on top. A common mistake is marking up direct costs by a percentage that covers profit but not overhead recovery, so the business runs at a loss even when every job looks profitable on paper. Work out your annual overhead, spread it across your expected turnover, and build that recovery into your markup.

Also known as: job costs vs overheads; direct vs indirect costs.

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