To calculate your overhead, add up every cost that keeps your business running but isn't tied to a specific job — rent, trucks, insurance, software, office staff, and your own management salary — then divide that annual total by your annual revenue (or your billable hours). The result is your overhead rate, the percentage you must recover on every job before you earn a dollar of profit. Most well-run trades businesses carry overhead of roughly 10–15% of revenue, and ignoring it is the fastest way to “busy but broke.”
What overhead actually is (and what it isn't)
Overhead is every indirect cost of being in business — the money you spend whether or not you booked a single job this week. It is not the direct cost of doing a job, and keeping the two straight is the whole game.
- Direct (job) costs: materials, equipment for that job, and the loaded wage of the tech on site. The loaded wage is your labor burden rate — base pay plus payroll taxes, workers' comp, and benefits.
- Overhead (indirect) costs: shop or office rent, vehicle payments and fuel not billed to a job, general liability insurance, software and dispatch tools, advertising, office and admin staff, accounting, licenses, and the portion of your own pay that covers estimating, managing, and running the company rather than turning wrenches.
Key takeaway: labor burden makes an hour of labor cost accurate. Overhead makes the whole business solvent. You need both baked into your prices.
The single most common mistake is leaving the owner's salary out of overhead. Many owners take draws but never charge the business a fair-market wage for the management and estimating work they do. That hidden cost makes your overhead rate look artificially low — and your prices too cheap.
The overhead formula, two ways
There are two reliable ways to express overhead. Use whichever matches how you price.
1. Overhead as a percentage of revenue
This is the fastest gut-check.
Overhead rate = Annual overhead ÷ Annual revenue
If you spend $180,000 a year on overhead and do $900,000 in revenue, your overhead rate is $180,000 ÷ $900,000 = 20%. Every job needs to contribute 20% toward overhead before profit begins.
2. Overhead as a dollar amount per billable hour
This is more precise for service work, because overhead doesn't care how big the invoice is — it accrues by the day.
Overhead per hour = Annual overhead ÷ Annual billable hours
Say the same $180,000 in overhead is spread across 3 techs who each bill about 1,300 hours a year (roughly 62% of paid time — the rest is drive time, callbacks, and downtime). That's 3,900 billable hours. $180,000 ÷ 3,900 = $46 of overhead per billable hour that must sit on top of the loaded labor cost.
| Input | Example value |
|---|---|
| Annual overhead | $180,000 |
| Annual revenue | $900,000 |
| Overhead as % of revenue | 20% |
| Billable hours (3 techs) | 3,900 |
| Overhead per billable hour | $46 |
Turning overhead into a markup you can price with
Knowing your overhead rate is useless until you convert it into the markup you apply to job costs. And here's the trap: you can't just add your overhead and profit percentages to a cost and call it done — that gives you a margin, not a markup, and it underprices you. (If that distinction is fuzzy, read the markup vs. margin guide first.)
The correct formula to recover overhead and hit a profit target is:
Required markup = (Overhead % + Profit %) ÷ (1 − Overhead % − Profit %)
With 20% overhead and a 10% net profit target:
(0.20 + 0.10) ÷ (1 − 0.20 − 0.10) = 0.30 ÷ 0.70 = 42.9% markup on your direct costs.
So a job with $1,000 of true direct cost should be priced at about $1,429 — not $1,300. That $129 gap, repeated across a year of jobs, is the difference between a healthy company and a break-even one. Run your own numbers with the margin & markup calculator before you quote.
What's a normal overhead percentage?
Benchmarks vary by trade and by how tightly a shop is run, but the pattern is consistent: control overhead and you keep your profit; lose track of it and margin quietly disappears.
- Well-managed contractors typically operate with overhead around 10–15% of revenue and land 8–12% net profit, according to 2026 home-services margin benchmarks.
- Poorly managed operations tell a different story — in HVAC, overhead can quietly consume up to 40% of revenue when it isn't tracked.
- The 2024 ACCA Financial Benchmarking Study found the median HVAC contractor netted just 5.8%, while the top quartile averaged 13.2% — largely a function of who controls overhead.
- Specialty trades (HVAC, plumbing, electrical) generally carry higher overhead than general remodelers because of licensing, insurance, inventory, and rolling stock.
Treat these as reference points, not targets. Your overhead is whatever your books say it is — the goal is to know the number, not to match someone else's.
How to calculate your overhead in five steps
- 1. Pull 12 months of expenses. Export last year from your accounting software so you're working from real figures, not memory.
- 2. Split every line into direct or indirect. Materials and billable tech wages are direct. Everything else — rent, insurance, admin pay, software, marketing — is overhead.
- 3. Add your true management salary. Charge the business what you'd pay someone to do your non-billable work. If you don't, your overhead is fiction.
- 4. Total the overhead and divide. By revenue for a percentage, or by billable hours for a per-hour figure.
- 5. Convert to markup and load it into your price book. Apply the required-markup formula so every line item already carries overhead and profit — no mental math at the truck.
That last step is where a master price book earns its keep. When your overhead and margin are baked into every task and material once, every quote is priced right automatically. That's the core of what Pricebookr does — keeping a single, marked-up price book in sync with Jobber so field techs quote for profit without recalculating overhead job by job.
FAQ
What's the difference between overhead and labor burden?
Labor burden is the true cost of an hour of a tech's time — base wage plus payroll taxes, workers' comp, and benefits — and it's a direct job cost. Overhead is the indirect cost of running the whole business (rent, insurance, admin, software, owner's management pay) that isn't tied to any one job. You recover labor burden inside your labor rate and overhead through your markup.
What percentage should overhead be for a contractor?
Well-run trades businesses typically keep overhead in the 10–15% of revenue range, though specialty trades often run higher. The exact figure matters less than knowing yours and pricing to recover it; untracked overhead in HVAC has been shown to reach 40% of revenue.
How do I add overhead to my prices?
Don't simply add the percentage to your cost. Use the markup formula: (Overhead % + Profit %) ÷ (1 − Overhead % − Profit %). With 20% overhead and 10% profit, that's a 42.9% markup on direct costs, which yields the margin you actually intended.
Should I include my own salary in overhead?
Yes — the portion that pays for estimating, managing, and running the company. Leaving it out is the most common reason an overhead rate looks low and jobs come in underpriced. Charge the business fair-market pay for your non-billable time.
Does overhead go up when I do more jobs?
Most overhead is fixed in the short term — rent and insurance don't rise because you booked one more job — so doing more work spreads the same overhead across more revenue and lowers your overhead rate. That's why keeping trucks and techs productive is one of the strongest levers on profit.