In Plain English
Quick Answer
The money a contractor expects to earn above all their costs on a project.
Definition
Definition
Profit in construction estimating is the financial return above all costs that a contractor expects to earn from a project. It is added as a percentage of total costs after all direct costs, general conditions, and overhead are accounted for. Profit margins in construction typically range from 2 to 8% depending on market conditions, project type, and competition.
Context
Why It Matters in Bidding
Profit is the most negotiable and most scrutinized number in a competitive bid, and shaving it too thin to win work leaves no cushion for unforeseen conditions, change-order disputes, or schedule slippage. Estimators must distinguish profit from overhead so that markup decisions are deliberate rather than buried, especially on cost-plus or GMP contracts where the owner audits the fee.
Example
Example
Reviewing a tight commercial bid, the estimator and owner agree to carry a five percent profit on a low-risk repeat client but bump it higher on a first-time, fast-track project where risk is greater.
See Also
Related Terms
FAQ
Questions Contractors Ask
What is the difference between profit and overhead in a bid?
Overhead covers the cost of running the business, such as office rent, salaries, and insurance allocated to the job. Profit is the return earned above all costs including overhead. Keeping them separate lets you defend your markup line by line and avoid eroding true earnings when negotiating.
How do I decide what profit margin to bid?
Weigh competition, project risk, backlog, and client relationship. A risky, complex, or fast-track job justifies a higher margin to offset uncertainty, while a low-risk repeat project in a crowded bid field may require a leaner fee. Avoid cutting profit to absorb estimating gaps you should price as contingency.
Is profit shown separately on a cost-plus or GMP contract?
Usually yes. Cost-plus-fee and guaranteed maximum price contracts typically state the fee as a defined percentage or fixed amount that the owner can audit. Clearly separating fee from reimbursable costs protects your margin and prevents disputes over what counts as a cost versus your earned profit.
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