Overhead is everything it costs to run your business that isn't tied to one job: the truck, insurance, phone, software, the time you spend estimating. Every job has to pay its share. If your prices don't include it, you can stay busy all year and still not make money.
The short version. Add up a year of overhead, divide it by a year of direct job costs, and you have your overhead rate. Add that percentage to the direct cost of every job before you add profit.
1. Separate job costs from overhead
| Direct job costs | Overhead |
|---|---|
| Materials for the job | Truck payment, fuel and maintenance |
| Labor on the job (including payroll taxes and workers' comp) | General liability and other business insurance |
| Subcontractors | Phone, internet and software |
| Equipment rented for the job | Tools and equipment you keep |
| Permits and dump fees for the job | Office or shop rent, utilities |
| Accounting, licenses, advertising, bank and card fees | |
| Your time estimating, driving to bids and doing paperwork |
If a cost would exist even if you had no jobs this month, it's overhead.
2. Add up a year of overhead
Use last year's numbers if you have them — your bookkeeping or tax return is the best source. If you're new, estimate a month and multiply by 12. Don't forget yearly bills like insurance and license renewals.
3. Divide by your direct job costs
Overhead rate = yearly overhead ÷ yearly direct job costs
Example (illustrative):
| Step | Amount |
|---|---|
| Yearly overhead | $36,000 |
| Yearly direct job costs | $120,000 |
| Overhead rate | $36,000 ÷ $120,000 = 30% |
On a job with $5,000 of direct cost, overhead adds $1,500. That makes $6,500 your break-even — below that price, you lose money. Profit goes on top of that.
4. Another way: overhead per billable hour
If most of your work is labor, figure overhead per hour instead:
Overhead per hour = yearly overhead ÷ billable hours
Billable hours are the hours actually spent working on jobs, not the hours you're "at work." A solo contractor who's busy year-round might bill 1,200 to 1,600 hours once you take out estimating, driving, supply runs, weather and time off. In the example above, $36,000 ÷ 1,500 hours = $24 an hour of overhead on top of your labor cost.
5. Pay yourself as labor, then add profit
Your own hours on the tools are a job cost — include a fair wage for yourself in labor. Profit is what's left for the business after everyone, including you, is paid. If you skip your own wage, "profit" is really just your paycheck.
6. Check it every year
Overhead changes as you grow: a second truck, a helper, new software. Recalculate at least once a year, and whenever a big cost changes.
Tip: Page 2 of the free Job Pricing Worksheet has a box for figuring your overhead rate, and the markup and margin calculator shows what you keep once overhead and profit are in the price.
See also: Estimating Basics and How to Price Handyman Jobs.