A general contractor is the single largest non-material cost in residential construction. On a $300,000 project, the GC's markup adds $45,000–$60,000. On a $500,000 project, it adds $75,000–$100,000.
That markup is either worth every dollar or the biggest waste in your budget — depending on your project and your situation. This guide breaks down exactly what GCs charge, what you get for it, and when you should (and shouldn't) hire one.
General contractors charge for their services in two main ways:
Cost-plus with markup (most common for custom builds): The GC charges you the actual cost of all subcontractors and materials, plus a percentage markup of 15–25% for overhead and profit. On a $250,000 subcontractor/material cost, a 20% markup means you pay $300,000 — with $50,000 going to the GC.
Fixed-price contract (most common for spec and semi-custom): The GC quotes a single price for the complete home. Their profit is embedded in the price. This gives you cost certainty but the GC absorbs overrun risk.
Percentage of total project cost: Across thousands of residential projects, GC overhead and profit represents 15–20% of total construction cost. This is the industry standard and what RSMeans data uses in professional estimates.
In dollars, for reference: - $200,000 project: GC markup = $30,000–$40,000 - $300,000 project: GC markup = $45,000–$60,000 - $400,000 project: GC markup = $60,000–$80,000 - $500,000 project: GC markup = $75,000–$100,000
It's easy to see a $50,000 markup and think it's money that could be saved. Here's what that money actually buys:
Project management: The GC coordinates every subcontractor, schedules every inspection, manages every delivery, and resolves every conflict. On a typical home, this is 20–40 hours per week for 8–12 months.
Subcontractor relationships: Experienced GCs have established relationships with the best subs in their market. In 2026's labor-scarce market, these relationships get your project prioritized.
Risk absorption: On a fixed-price contract, the GC absorbs the risk of subcontractor price increases, weather delays, and material cost changes.
Warranty accountability: If something goes wrong, the GC is your single point of contact and legally responsible for the work.
Lender requirements: Most construction loans require a licensed GC under contract. If you're financing through a bank, skipping the GC often isn't an option.
Acting as your own general contractor — hiring subcontractors directly — eliminates the 15–20% GC markup. On a $300,000 project, that's $45,000–$60,000 in potential savings.
When owner-builder makes sense: - You have construction project management experience - You have 20–40 hours per week available for 8–12 months - You have existing relationships with quality subcontractors in your area - You're building in a state where owner-builder permits are available (most states allow this for owner-occupied homes) - You have sufficient cash cushion to handle problems without a GC backstop
When to hire a GC instead: - First-time builders with no construction background - People with full-time jobs and limited availability - Remote builds where you can't be on-site regularly - Complex custom homes requiring significant coordination
The hidden costs of owner-builder: Time is money. Owner-builders also pay more for materials (no volume pricing), make more costly mistakes, and often have more difficulty with construction financing.
Get three or more competitive bids. With three bids in hand, you know the market rate and can negotiate from a position of knowledge. Price variance between GCs is 15–25% for the same project.
Ask for a detailed breakdown. A professional GC should be able to show you their estimated cost for each subcontractor and their markup percentage. If a GC won't provide this, that's a red flag.
Negotiate the markup percentage directly. On larger projects ($400,000+), it's reasonable to negotiate a GC markup down from 20% to 15–17%.
Offer a winter start. GCs actively compete for projects in their slow season (November–February). A winter start often yields a 5–10% cost reduction.
Pay promptly. GCs charge higher markups to clients who are slow to pay. Offering progress payments on a defined schedule is worth 1–3% in reduced markup.
Don't just choose the lowest bid. GC bids that are 20%+ below competitors usually indicate missed scope, inexperienced subs, or a plan to make it up in change orders.
Some homeowners hire a construction manager (CM) instead of a GC. The distinction matters:
General Contractor: Takes full contractual responsibility for the project. Signs contracts with subs in the GC's name. Provides a warranty. Absorbs subcontractor risk. Charges 15–20% overhead and profit.
Construction Manager: Advises you on the project but contracts are between you and each subcontractor. The CM charges a flat fee (typically $15,000–$40,000) or hourly rate ($75–$150/hr). You take on contractual risk with each sub.
When CM makes sense: If you want expert guidance without full GC markup, a CM is a middle ground. The CM's fee is typically 5–8% of project cost vs 15–20% for a GC. But you assume more risk.
How to find a good GC: Ask local subcontractors (electricians, plumbers) who the best GCs in your area are — subs know who runs tight ships and pays on time. Check licensing and insurance. Review past project lists and speak with past clients directly.