Guide
Contractor overhead calculation: the complete method
Overhead is every dollar you spend that is not directly tied to a specific job. Most contractors know this money exists — they just do not know how much it is per hour, which means they cannot price it into jobs correctly.
What counts as overhead
Overhead = costs that continue whether you are on a job or not.
Direct job costs (materials, direct labor, subcontractors) are NOT overhead. They are job costs.
The overhead rate formula
Monthly overhead = sum of all fixed and semi-fixed monthly costs
Monthly billable hours = hours your crew bills clients (not total hours)
Overhead rate = Monthly overhead ÷ Monthly billable hours
Worked example: 3-person crew
| Overhead item | Monthly cost |
|---|---|
| Owner salary (draw) | $7,500 |
| 2 vehicles (payments + insurance) | $1,800 |
| Equipment payments | $900 |
| GL insurance | $650 |
| Tools and consumables | $400 |
| Software and subscriptions | $150 |
| Phone, internet, admin | $250 |
| Accounting | $200 |
| Advertising | $500 |
| Misc (storage, legal, etc.) | $350 |
| Total monthly overhead | $12,700 |
3-person crew, ~7 billable hrs/day, 22 working days = 462 billable hrs/month
Overhead rate = $12,700 ÷ 462 = $27.49/hr
Every hour this crew works must recover $27.49 in overhead before profit begins.
How to apply overhead to job estimates
Add overhead as a line item based on estimated hours:
Overhead charge = Estimated hours × Overhead rate
Example: 80-hour job × $27.49/hr = $2,199 overhead
This overhead charge is added to direct costs before applying your margin. A job with $15,000 in direct costs and $2,199 overhead has a total cost base of $17,199, which you then mark up to your target margin.
Overhead as a percentage of revenue
A useful sanity check — what percentage of your revenue goes to overhead?
| Business type | Typical overhead % |
|---|---|
| Solo operator (no employees) | 15–22% |
| 2–4 person crew | 22–30% |
| 5–10 person company | 28–35% |
| 10–20 person company | 30–40% |
| GC with subs (low direct labor) | 12–18% |
If your overhead percentage is higher than these ranges, identify the largest line items and evaluate whether they are producing revenue.
Check your bids include overhead
Bid Command verifies your estimate hits your target margin after all costs — including overhead allocation.
Open Bid Command →Related