Free tool
Overhead rate calculator
Overhead is the cost of existing. Until you know what share of a job it eats, every price you set is missing a number and every job looks more profitable than it was.
Method reviewed by Darren Lim, US CPALicence CPA.74253602Free · No email required · Nothing leaves your browser
Your numbers
Overhead rate
23.4%
Every dollar of revenue has to give up 23.4% before a job has made anything. This is the figure the job profit calculator asks for.
Take this rate into the job profit calculator to see what a real job made after carrying it.
What counts as overhead
Anything you would still pay next month if no work came in: rent, insurance, office wages, software, truck payments, advertising you have committed to, professional fees, licences, and the owner’s wage.
What is not overhead: materials, field labour, subcontractors, and anything else that only exists because a specific job did. Those are direct costs and they belong above the gross margin line. Mixing the two is the most common error here and it makes every subsequent number wrong.
The awkward middle case is a working owner or a field supervisor who splits time between jobs and running the business. Split them by time honestly rather than putting the whole cost in whichever bucket is convenient.
Two ways to apply it, and when each is right
As a percentage of revenue — annual overhead divided by annual revenue. Simple, and it works when jobs are broadly similar in shape. This is the figure the job profit calculator on this site asks for.
Per billable hour — annual overhead divided by the hours you can actually bill across the business. Better for service work, where a job is mostly labour, and it makes the effect of utilisation impossible to ignore.
The second one exposes something the first hides: overhead per hour rises when billable hours fall. Two slow months and the same overhead has to be recovered across far fewer hours, which is precisely when contractors discount to stay busy and make it worse.
The number to watch is the trend
Overhead as a percentage of revenue should fall as you grow, because most of it is fixed and revenue is not. If yours is flat or rising while revenue grows, something that should have been a fixed cost is behaving like a variable one — usually office headcount, software seats, or vehicles added faster than the work justified.
It is one of the few numbers where a single figure means little and the direction over four quarters means a great deal.
Common questions
- Is the owner’s wage overhead?
- The portion that pays for running the business, yes. If you also work in the field, that part is direct labour on the jobs you work. Splitting it is the honest treatment, and it stops the business looking more profitable than it is.
- What is a normal overhead rate?
- It varies far too much by trade, size and model for a benchmark to be worth much — a service business with six trucks and an office looks nothing like a two-person install operation. Your own number, tracked over time, tells you more than any industry figure.
- Should marketing be overhead?
- Committed spend that continues regardless of work, yes. Commission on a specific job is a direct cost of that job. The test is the same as everywhere else: would the cost exist if the job had not?
What we do about it
Overhead separated from job cost properly from the first month, so the rate you apply to a quote is your real one — and it updates as costs move instead of being worked out once and quietly going out of date.