Overhead Rate Calculator
Calculate your overhead rate to ensure all business expenses are covered in your project bids.
Formula
Overhead Rate = (Total Annual Overhead Costs / Total Annual Revenue) × 100. Per-Job Overhead = Job Revenue × Overhead Rate
How to Use
- 1List all annual overhead costs: office rent, insurance, vehicles, tools, accounting, marketing, office staff salaries, licenses, and utilities.
- 2Add up all overhead costs for a full 12-month period.
- 3Determine your total annual revenue (or projected revenue).
- 4Divide total overhead by total revenue and multiply by 100 to get your overhead rate percentage.
- 5Apply this percentage to each job estimate to ensure overhead is covered.
Example
Scenario
A remodeling contractor needs to calculate their overhead rate. Annual overhead includes: office rent $18,000, insurance $24,000, vehicles $15,000, tools $6,000, office manager $45,000, accounting $5,000, marketing $8,000, licenses $2,000, utilities and phone $7,000.
Calculation
Total annual overhead: $18,000 + $24,000 + $15,000 + $6,000 + $45,000 + $5,000 + $8,000 + $2,000 + $7,000 = $130,000. Projected annual revenue: $800,000. Overhead rate: $130,000 / $800,000 × 100 = 16.25%.
Result
Your overhead rate is 16.25%. On a $50,000 job, you need to allocate $8,125 to cover overhead. This means your markup must cover both this 16.25% overhead and your desired profit margin on top of direct job costs.
Tips
- ★Review and recalculate your overhead rate at least annually — it changes as your revenue and expenses grow.
- ★Do not forget to include owner's salary as an overhead cost if you want the business to support you regardless of billable hours worked.
- ★If your overhead rate exceeds 25-30%, look for ways to reduce fixed costs or increase revenue volume to spread overhead across more work.
- ★Track overhead costs monthly so you catch increases early rather than discovering a problem at year end.
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Common questions about the overhead rate calculator
Overhead rates for contractors typically range from 10-25% of revenue. Solo operators working from home may have overhead as low as 8-12%. Small companies with an office and staff typically run 15-22%. Larger companies with multiple locations and significant administrative staff can have overhead of 20-30% or more.
Overhead includes all business expenses that are not directly tied to a specific job. Common items include: office rent or mortgage, general liability and business insurance, vehicle payments and fuel, office staff salaries, accounting and legal fees, marketing and advertising, licenses and permits, phone and internet, tools and equipment that serve multiple jobs, and software subscriptions.
Build overhead into your markup formula: Markup Percentage = Overhead Rate + Desired Profit Margin. For example, with 16% overhead and 10% desired profit, your minimum markup on direct costs would be 26%. Some contractors allocate overhead per labor hour rather than as a percentage of revenue — either method works as long as you are consistent.