What is the difference between cost price and the offer?

Cost price is how much it costs you to build, while the offer price is how much you ask from the client. Offer = cost price + a markup for profit and risk. When companies bid "by gut feeling" or copy the competition without knowing their real cost price, they win projects that actually finish at a loss.

What do overhead (indirect) costs include in construction?

Overhead (indirect) costs are those that cannot be assigned directly to a single item: temporary works, site power and water, security, fencing, mechanized site preparation, site manager and technical supervision, as well as company-wide administrative costs (office, accounting, management). They are allocated to projects using a chosen base.

How are indirect costs allocated to a project?

Through a percentage markup over a chosen base — most often over direct costs or over labor costs. For example, if annual overhead costs are 15% of direct costs, every project absorbs +15% on top of its own direct costs. The base must be consistent across all projects so the results are comparable.

Why don't most construction companies know their real cost price?

Because the data is fragmented: invoices are in accounting, materials are in the warehouse or on paper, labor is in one set of spreadsheets, equipment in another. Without a system that links every cost to a specific project and item in real time, the real cost price is only understood after the project closes — when it's already too late to correct.

Cost Price in Construction — How to Calculate and Control the Real Cost of a Project

Two construction companies deliver the same project — identical design, identical scope, the same selling price. The first finishes at a profit, the second at a loss. The difference isn't luck and it isn't the price to the client. The difference is that the first company knows exactly how much it costs them to build, and the second does not. That real cost is called the cost price, and it is the single most important number every construction company needs to know — yet most of them don't.

What is cost price in construction?

Cost price is the full, real amount a company pays to deliver a given project or unit of work. It is the sum of everything you have actually spent — materials, labor, machines, subcontractors — plus the share of the company's general costs that falls on that project.

It's important not to confuse three different concepts:

Cost price — how much it costs you to build (your real cost).
Offer / selling price — how much you ask from the client.
Profit — the difference between the two.

The formula looks simple at first glance:

Offer price = Cost price + Markup (profit and risk)

The problem is that the cost price is the foundation of this equation — if you don't know it, you can't set the offer price either. So you bid "by gut feeling", copy the competition, or add a percentage on top of a rough estimate — and hope. And hope is not a financial strategy.

What the cost price is made of

The cost price has two main groups: direct and indirect costs. Understanding the difference between them is at the heart of every correct calculation.

Direct costs

These are the costs you can assign directly to a specific item or project. If you're building this structure, these costs exist because of it:

Materials — concrete, rebar, bricks, screeds, insulation, joinery. They are recorded by actual consumption, not by the initial plan, and always with a waste allowance (process waste from cutting, breakage, delivery errors).
Labor — not just the net wage, but the full labor cost: gross wage plus social contributions and taxes paid by the employer. This is a common mistake — companies count only the "hourly rate", while the real cost is 20–30% higher because of social contributions.
Equipment — cranes, excavators, concrete pumps, lifts. For owned machinery you account for depreciation, fuel, and the operator; for rented machinery — the rental price.
Subcontractors — everything you outsource (plumbing, electrical, facades) is a direct cost for the project.

Indirect (overhead) costs

These are the costs that serve the project or the company as a whole but cannot be attributed to a single specific item — they are also called overhead or indirect costs. They exist, but they don't "hang" on any single line of the bill of quantities (BOQ):

General site costs — temporary works (containers, temporary fencing), site power and water, security, cleaning, organization of the works.
Technical supervision — site manager, technical supervisor, surveyor — people whose time is split between tasks and projects.
Company-wide (administrative) costs — office, accounting, management, software, advertising. These costs have to be "recovered" from the revenue of all projects.

Overhead costs are where the loss most often hides. It's easy to forget that the site manager, the temporary power, and the company accounting also have to be paid — and paid out of the margin on your projects.

How overhead costs are allocated

Direct costs are easy — they have an address. The real art of calculating the cost price is how you allocate the indirect costs across projects. The standard approach is a percentage markup over a chosen base.

Step 1 — choose a base. Most often the base is total direct costs or labor costs alone. What matters is that the base is the same for all projects, so they are comparable.

Step 2 — calculate the percentage. Divide your annual overhead costs by the annual base. Example: if annual overhead costs are €150,000 and annual direct costs are €1,000,000, then the overhead percentage is 15%.

Step 3 — apply it to the project. Every project absorbs +15% on top of its own direct costs as its share of the overhead costs.

Example. A project with €80,000 in direct costs and a 15% overhead percentage has a cost price of 80,000 + 12,000 = €92,000. If you offered it for €100,000, your real profit is €8,000 (8%) — not €20,000, as it appears if you look only at the direct costs.

That difference — between apparent and real profit — is why many companies "run on turnover" but have no money at the end of the year.

Cost price per project and per item

There are two levels at which you calculate cost price, and you need both:

Cost price per project (job costing) — how much the whole project costs you. This answers the question "are we making money on this project".
Cost price per unit (unit cost) — how much a unit of work costs you: euros per sq m of masonry, euros per cu m of concrete, euros per ton of rebar. This answers the question "how much to put in the next offer".

The unit cost price is the gold of estimating. When you know that your real cost price for a sq m of aerated concrete masonry is €48 (and not €40, as you had assumed), your next offer is accurate — and competitive without being a loss-maker.

Planned versus actual cost price

Calculating the cost price is not a one-off action at the start. It is a continuous comparison between two numbers:

Planned cost price — what you assumed when bidding.
Actual cost price — what you really spend as the project progresses.

The difference between them is the variance, and it is the most valuable management information you have. If at 40% completion you see that actual labor costs already exceed the planned ones by 18%, you have time to react — restructure the crew, negotiate with a supplier, warn the client. This is the essence of cost control in construction.

The problem: if you learn about the variance after the project closes, the information is useless — the money is already spent. And that is exactly what happens when the cost price is calculated in Excel once, at the end.

Why most companies don't know their real cost price

Not because they don't care, but because the data is scattered across islands:

Material invoices are in the accounting software.
The actual warehouse consumption is on paper or in a separate file.
Wages are in a third spreadsheet.
Equipment and subcontractors — in emails and contracts.

To calculate the real cost price of a single project, someone has to gather all of this by hand, link it to the right project, and allocate it across items. In practice this takes days — so it isn't done, or it's done roughly and late. The result is a budget overrun that looks like a surprise, but was actually visible long ago — only nobody was looking.

How Construction Team solves the problem

This is exactly what Construction Team solves — it turns calculating the cost price from a manual epic into an automatic process. The key idea is that every cost is linked to a project and an item at the moment it is entered:

A material invoice → assigned to a project and a BOQ item.
A warehouse movement → reduces the stock and records the actual cost per project.
An hour of labor → goes to the project where it was performed.
A subcontractor act → recorded as a direct cost of the project.

As a result, the real cost price is always available — not at the end of the project, but in real time. You see planned versus actual per item, variances are color-coded automatically, and unit cost prices from completed projects feed the estimating of your next offers. Construction Team connects expense management, bills of quantities, and analytics into one picture, instead of ten files.

Common mistakes when calculating cost price

Forgotten overhead costs — only direct costs are counted and the project looks profitable, while on an annual basis the company is breaking even. Overhead costs must be in the calculation, not "somewhere on top".
Underestimated labor cost — the net wage is counted instead of the full cost with social contributions. The real cost is 20–30% higher.
Missing waste allowance — the material is counted by theoretical quantity, with no waste. On site you always use more.
Unaccounted equipment — owned machinery "looks free", but fuel, depreciation, and the operator are real costs.
VAT confusion — mixing values with and without VAT in a single calculation distorts the result. Cost price is calculated excluding VAT.
A one-off calculation — the cost price is computed once at the start and nobody tracks it. Without a planned vs actual analysis, the calculation is a wish, not management.

The takeaway

Cost price is not an accounting formality — it is the difference between a company that knows whether it's making money and a company that hopes. It starts with discipline: every cost must have an address (project and item), overhead costs must be allocated consistently, and the planned cost price must be compared with the actual one while the project runs — not afterward.

Excel can take the first step. But continuous, accurate cost price in real time requires the data to be connected, not scattered — and that is exactly the difference between reacting in time and finding out a month too late.

Construction Cost Control — How to Keep Your Project on Budget — how to track planned vs actual on costs in real time
Why Construction Projects Go Over Budget — the five causes of overruns and how to prevent them
How to prepare a bill of quantities (BOQ) — the foundation on which every cost price calculation stands

Want to know the real cost price of every project without gathering data from ten files? Request a demo and we'll show you how Construction Team connects costs, warehouse, and labor into one living picture of profit.