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📊 Overhead Rate Calculator

Calculate your overhead rate to ensure you're pricing work correctly and covering all costs.

What is Overhead?​

Overhead (also called indirect costs or general and administrative) are costs not directly tied to a specific project:

  • Office salaries
  • Office rent
  • Insurance
  • Utilities
  • Office supplies
  • Marketing
  • Accounting/legal
  • Depreciation

Why Calculate Overhead Rate?​

You need to:

  • Price work correctly - Include overhead in bids
  • Track profitability - Know true project costs
  • Make decisions - Understand cost structure
  • Improve margins - Identify cost reduction opportunities

Calculate Overhead Rate​

Method 1: Percentage of Direct Costs​

Formula:

Overhead Rate = (Total Overhead ÷ Total Direct Costs) × 100

Example:

  • Total overhead: $200,000
  • Total direct costs: $1,000,000
  • Overhead rate: ($200,000 ÷ $1,000,000) × 100 = 20%

Application:

  • Project direct costs: $50,000
  • Overhead allocation: $50,000 × 20% = $10,000
  • Total project cost: $60,000

Method 2: Percentage of Revenue​

Formula:

Overhead Rate = (Total Overhead ÷ Total Revenue) × 100

Example:

  • Total overhead: $200,000
  • Total revenue: $1,200,000
  • Overhead rate: ($200,000 ÷ $1,200,000) × 100 = 16.7%

Application:

  • Project revenue: $60,000
  • Overhead allocation: $60,000 × 16.7% = $10,000
  • Overhead cost: $10,000

Method 3: Per Employee​

Formula:

Overhead per Employee = Total Overhead ÷ Number of Employees

Example:

  • Total overhead: $200,000
  • Number of employees: 20
  • Overhead per employee: $200,000 ÷ 20 = $10,000/year

Application:

  • Project uses 2 employees for 6 months
  • Overhead allocation: 2 × $10,000 × 0.5 = $10,000

Which Method to Use?​

Best for:

  • Most contractors
  • Project-based work
  • Easy to apply

Pros:

  • Simple to calculate
  • Easy to apply to projects
  • Industry standard

Cons:

  • Assumes overhead scales with direct costs
  • May not reflect actual usage

Percentage of Revenue​

Best for:

  • Service-based work
  • When overhead doesn't scale with direct costs

Pros:

  • Reflects actual overhead percentage
  • Useful for pricing

Cons:

  • Harder to apply to individual projects
  • Less common in construction

Per Employee​

Best for:

  • Labor-intensive work
  • When overhead is primarily people-related

Pros:

  • Reflects actual resource usage
  • Good for labor-heavy projects

Cons:

  • More complex to track
  • Requires employee time tracking

Calculate Your Overhead​

Step 1: Identify Overhead Costs​

Common overhead costs:

  • Office salaries - Office staff, management
  • Office rent - Office space
  • Insurance - General liability, workers' comp (office portion)
  • Utilities - Office utilities
  • Office supplies - Paper, pens, etc.
  • Marketing - Advertising, website
  • Accounting/legal - Professional services
  • Depreciation - Office equipment, vehicles
  • Telephone/internet - Office communications
  • Travel - Business travel (non-project)

Step 2: Calculate Total Overhead​

For annual rate:

  • Sum all overhead costs for the year
  • Use actual costs or budgeted costs

For monthly rate:

  • Sum all overhead costs for the month
  • Or annual ÷ 12

Step 3: Calculate Direct Costs​

For annual rate:

  • Sum all direct costs (labor, materials, subs, equipment) for the year

For monthly rate:

  • Sum all direct costs for the month

Step 4: Calculate Rate​

Percentage of direct costs:

Overhead Rate = (Total Overhead ÷ Total Direct Costs) × 100

Example Calculation​

Company Financials (Annual)​

Overhead costs:

  • Office salaries: $150,000
  • Office rent: $36,000
  • Insurance: $40,000
  • Utilities: $12,000
  • Office supplies: $8,000
  • Marketing: $20,000
  • Accounting/legal: $15,000
  • Depreciation: $10,000
  • Other: $9,000
  • Total overhead: $300,000

Direct costs:

  • Labor: $800,000
  • Materials: $400,000
  • Subcontractors: $500,000
  • Equipment: $100,000
  • Total direct costs: $1,800,000

Overhead rate:

  • ($300,000 ÷ $1,800,000) × 100 = 16.7%

Applying Overhead to Projects​

Example Project​

Project direct costs:

  • Labor: $20,000
  • Materials: $15,000
  • Subcontractors: $10,000
  • Equipment: $5,000
  • Total direct costs: $50,000

Overhead allocation:

  • $50,000 × 16.7% = $8,350

Total project cost:

  • Direct costs: $50,000
  • Overhead: $8,350
  • Total cost: $58,350

Typical Overhead Rates​

By Company Size​

Company SizeTypical Overhead Rate
Small (under $5M)15-25%
Medium ($5-25M)10-20%
Large ($25M+)8-15%

By Trade​

TradeTypical Overhead Rate
General Contractor10-20%
Specialty Sub15-30%
Service Contractor20-35%

Common Mistakes​

MistakeProblemSolution
Too lowNot covering all costsReview all overhead costs
Too highNot competitiveVerify calculations
Not updatingUsing outdated rateRecalculate annually
InconsistentDifferent methodsUse one method consistently

Improving Your Overhead Rate​

Reduce Overhead​

  • Review expenses - Cut unnecessary costs
  • Negotiate - Better rates on insurance, rent
  • Automate - Reduce manual work
  • Outsource - When cheaper than in-house

Increase Direct Costs​

  • More projects - Spread overhead across more work
  • Larger projects - More direct costs per project
  • Efficiency - More productive crews
Review Annually

Recalculate your overhead rate annually. Your overhead percentage should decrease as you grow and spread fixed costs across more revenue.