BUSINESS
How to Figure Your Overhead Rate
Make sure every job covers its share of office, insurance, vehicles and tools by turning monthly overhead into a recoverable rate.
A job can cover its materials and field wages and still lose money if it ignores the office rent, insurance, vehicles, software and tools that keep the business running. Overhead is real, and somebody has to pay for it — usually the customer, through your prices. This guide shows you how to turn monthly overhead into a recoverable rate per hour or per job.
What actually counts as overhead
Overhead is any operating cost that is not charged directly to a single job. Common examples are office rent and admin payroll, general liability and vehicle insurance, accounting and software, phones, marketing and tools that are not consumed by one project.
- Office rent, utilities and admin staff
- General liability and business insurance
- Vehicles, fuel and registration
- Software, phones, accounting and legal
- Marketing, tools and small equipment
Why ignoring overhead quietly kills profit
When prices cover only direct costs, every job looks profitable on paper while the money needed to keep the lights on never appears. The business starves slowly — it feels busy, but the account balance does not move. The fix is not to cut overhead to zero, but to make sure your prices recover it.
Turn monthly overhead into a billable rate
The simplest method: add your monthly overhead, estimate how many labor hours you can realistically bill to customers in that month, and divide. That gives you an overhead cost per billable hour that every job should recover.
Never count the same expense twice
If a cost is already included as a direct line on a job — like a vehicle used only on that project, or equipment billed to it — leave it out of the overhead total. Double-counting inflates your price and makes you less competitive without adding real profit.
Fold overhead into your markup
Once you know the overhead rate, decide how to recover it: build it into your labor rate, add it to every estimate as a percentage, or wrap it into your markup. Consistency matters more than the specific method, because mixing approaches hides what each job really costs.