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| Materials | Labor (hrs × rate) | Overhead | Contingency | Profit Target | Required Price |
|---|---|---|---|---|---|
| $25,000 | 320 × $45 | 18% of labor | 7% of (direct+overhead) | 10% after-tax margin | $67,994.93 |
| $40,000 | 500 × $55 | 25% of (mat+labor) | 10% of (direct+overhead) | 15% markup on cost | $106,734.38 |
Start with materials, subcontracting, equipment, and direct labor. Direct labor is hours multiplied by the loaded hourly rate. This baseline matters because every later allowance is layered on top of it. When labor dominates, small changes in hours or rate can shift the required price quickly. A 10% labor increase can lift overhead and contingency when labor-based.
Overhead can be applied to labor only, total direct cost, materials plus labor, or a custom base. Using labor as the base emphasizes engineering effort; using total direct cost spreads overhead across procurement and vendors. Track which basis matches your internal cost accounting, then test sensitivity by switching bases and observing the margin requirement change.
Contingency covers estimating uncertainty, scope creep, and productivity variance, typically as a percentage of direct plus overhead. Risk premium is separate: it prices known technical, delivery, or commercial exposure. Keeping them distinct supports clearer governance: contingency is released as uncertainty resolves, while risk premium should remain until mitigation actions reduce likelihood or impact.
If cash is tied up during execution, financing captures carrying cost. The calculator approximates financing by applying an annual rate to the subtotal over the project duration in months. At 12% annual and 6 months duration, financing is roughly 6% of the subtotal. Longer schedules, slower invoicing, or front‑loaded purchasing increase effective cost, so include duration even for fixed‑price work with milestone payments.
Profit can be set as a margin on price, markup on cost, or a fixed amount. A margin target requires solving for price because profit is a fraction of price, not cost. With tax included, after‑tax margin must be grossed up to a before‑tax amount, so higher tax rates increase required price even if costs stay constant. Use markup when you want profit to scale directly with cost growth during design evolution.
Use required contract price, gross margin, and markup together. Margin compares profit to price, useful for portfolio reporting; markup compares profit to cost, useful for estimate reviews. Add retention and warranty reserves to understand net receivable at completion. Export the summary to document assumptions, support approvals, and align stakeholders.
Margin is profit divided by price; markup is profit divided by cost. A 20% margin equals a 25% markup because price must cover cost and profit.
Use the basis that matches how your organization tracks indirects. Labor-based suits engineering-heavy work; total-direct suits procurement-heavy packages. Consistency matters most when comparing bids and historical performance.
Contingency reflects estimate uncertainty and should shrink as design matures. Risk premium prices identified exposures such as tight schedules or novel methods. Keep them separate so contingency can be released while risk premium stays until mitigations complete.
It approximates carrying cost for cash tied up during execution. Higher rates or longer durations increase total cost. If you invoice early or receive advances, set it lower; if payments are delayed, set it higher.
An after-tax profit target must be converted to before-tax profit. With higher tax, you need more pre-tax profit to end with the same after-tax amount, so the required contract price increases.
Yes. After calculating, use Download CSV for spreadsheet review and Download PDF for a one-page summary. Exports include inputs, breakdown, price, margin, markup, and reserves for easy sign-off.
Important Note: All the Calculators listed in this site are for educational purpose only and we do not guarentee the accuracy of results. Please do consult with other sources as well.