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How to Calculate Your Overhead Rate per Billable Hour

Overhead is everything you pay whether or not you work. If it is not on every job, it comes out of your pocket at the end of the year.

What overhead is, and is not

Overhead is a cost that does not belong to any one job. It accrues by the month regardless of how many jobs you did. Direct costs belong to a job: the crew hours on it, the machine hours, the dump fee for that load. The test: if you did zero jobs this month, would you still pay it? If yes, it is overhead.

Overhead lineExample, per year
Shop or yard rent$9,600
Office, phone, internet$1,800
Software and subscriptions$1,200
Accounting and legal$2,400
Licenses, permits, dues$900
Advertising, website, lead fees$3,000
Business insurance not rated on payroll$4,200
Vehicles not billed to jobs (the estimating truck)$2,600
Bank, card and platform fees$1,100
Owner time off the truck: quoting, admin, chasing money$18,000
Everything else$2,000
Total annual overhead$46,800

The line everybody leaves out

If you spend fifteen hours a week estimating, scheduling, ordering parts and sending invoices, and you do not pay yourself for those hours, your business has $18,000 a year of free labor in it. The jobs never carry it, your prices are too low by that amount, and the day you hire an office manager the business suddenly "cannot afford" what it was always costing. Put your own admin time in overhead at a real hourly rate.

Spread it over billable hours, not paid hours

Overhead rate = annual overhead ÷ billable hours per year. $46,800 ÷ 1,476 billable crew hours = $31.71 per billable hour.

Billable hours means hours a customer pays for, not hours the crew is on the clock. If you divide by paid hours (2,000), the rate looks like $23.40 and every job is under-allocated by a quarter. The unbillable hours have to be carried by the billable ones.

Monthly version for small crews

If you think in months: monthly overhead ÷ billable crew hours per month. $6,500 ÷ 320 = $20.31 per crew hour. Same idea, shorter horizon. Recalculate it every quarter; overhead creeps and billable hours swing with the season.

Where it goes on a quote

Multiply the overhead rate by the crew hours on the job and add it to direct cost before applying margin. A 22.5-crew-hour tree job carries $457 of overhead at $20.31. Apply margin to the total, not to direct cost alone: cost ÷ (1 − margin).

Signs your overhead is not in your prices

Run your own numbers

The free Hourly Rate Calculator does the math in this guide on one screen. Nothing is saved, no sign-up.

For a spreadsheet you keep, with your rates saved and a printable quote, the full Crew + Equipment Job Cost Calculator is on Etsy.

Open the free calculator Full version on Etsy · $29

Numbers in this guide are illustrative placeholders. Wages, insurance, fuel and fees vary by region. This is not legal, tax, insurance or accounting advice.