Every job carries a piece of the truck payment.
Overhead is everything the business costs that doesn't belong to one job. Put in a year of it, with your revenue, billable hours and job costs, and see three ways to load it into your prices.
Redline's Money tab (Solo and up) totals what you collected and spent by month, quarter or year, so the next time you run this you have real numbers.
Try Redline freeHow the math works
Three divisions of the same yearly overhead. Divided by revenue, it's the share of every dollar you bring in that goes to keeping the doors open. Divided by billable hours, it's what each hour you charge for has to carry before it pays for labor or makes a profit. Divided by direct job costs, it's the markup on materials and job labor you need just to break even on overhead.
The last line is what's left of revenue after direct costs and overhead. If your own pay is inside overhead, that's profit. If it isn't, your pay comes out of that line.
Direct costs are the ones that belong to a specific job: materials, job labor, subs, dump fees, permits, rentals. Overhead is the rest: truck payments, insurance, the shop, phones, software, advertising, accounting, and the office help. Put each cost in one bucket, never both.
Worked example
Yearly overhead of $60,000, revenue of $300,000, 1,500 billable hours and $150,000 in direct job costs:
| Measure | Math | Result |
|---|---|---|
| Overhead as a share of revenue | $60,000 ÷ $300,000 | 20% |
| Overhead per billable hour | $60,000 ÷ 1,500 | $40.00 |
| Markup on direct cost to cover overhead | $60,000 ÷ $150,000 | 40% |
| Left after direct costs and overhead | $300,000 minus $150,000 minus $60,000 | $90,000 |
| On one job with $2,000 in direct costs | $2,000 + 40% | $2,800 before any profit |
| On one 16-hour job | 16 × $40 | $640 of overhead to recover |
Example figures to show the math. They aren't benchmarks for any trade.
What to watch for
- Use a full year. A busy summer month makes overhead look small; a slow winter month makes it look huge.
- Pick one method for loading overhead and use it on every quote. Per hour suits labor-heavy work; a markup on direct cost suits material-heavy jobs.
- Your own salary is the item people forget. If you don't pay yourself through job labor, it belongs in overhead.
- Growing the crew changes billable hours and overhead at the same time. Rerun it when you add a truck or a person.
- Overhead per billable hour plus the burdened labor cost per billable hour is the floor under your hourly rate, before profit.
Questions contractors ask
What's a normal overhead percentage?
There isn't one number that fits. It depends on the trade, the crew size, whether you rent a shop, and whether your pay sits in overhead or job labor. Compare yourself with your own last year rather than someone else's average.
Why is the markup percentage bigger than the revenue percentage?
Because it's spread over a smaller base. Direct costs are only part of revenue, so covering the same overhead takes a bigger percentage of them.
Can Redline give me these numbers?
Part of them. On Solo ($29 a month) and up, Money's Reports tab shows what you collected and spent for the month, quarter or year, plus profit per job after the materials you filed against it. It doesn't track labor hours or replace your bookkeeping, and it exports a QuickBooks-format CSV rather than syncing. Tell the chat your overhead rate and memory saves it for building quotes.
Related
Keep reading
- Hourly rate calculatorTurn pay, overhead and billable hours into the rate you should charge.
- Break-even calculatorHow many jobs a month cover your fixed costs, and what that is in revenue.
- Job profit calculatorSee what a job really makes after materials, labor and overhead.
- Expenses and reportsReceipts filed against the job, profit per job after materials, and CSV exports.