What Is Overhead, and How Do Contractors Calculate It?

By BRIX Editorial Team · Updated October 12, 2026

Overhead is every cost of running a business that isn't tied to a specific job: office staff, rent, trucks, insurance, phones, software, marketing and the owner's salary. Contractors calculate an overhead rate by dividing a year of overhead by revenue, billable hours or jobs. $360,000 of overhead on 5,200 billable hours is $69.23 per hour.

Key takeaways

Overhead is the cost of being in business; job costs are the cost of doing a job. If a cost would still be there in a month with no work, it's overhead.
Overhead rate as a % of revenue tells you the gross margin you need. Overhead per billable hour tells you what to add to labor rates.
Divide by billable hours, not paid hours. Using paid hours makes overhead look much cheaper per hour than it really is.
Include a market salary for the owner. Unpaid owner time hides real overhead and leads to underpricing.
Recalculate at least once a year, and whenever you add a truck, an office hire or a new location.

What counts as overhead for a contractor?

Overhead for a contractor is any cost you'd still pay in a week when no jobs ran: the office, the people who answer phones and schedule work, vehicles, insurance, software, marketing, professional fees and your own management salary. Materials, field labor, subcontractors and job permits are not overhead; they're cost of goods sold and get priced into each job directly.

Common overhead lines in a trades business
Category	Examples	Easy to forget
Office and admin labor	Office manager, CSRs, dispatcher, bookkeeper, with their payroll taxes and benefits	Paid time off and the labor burden on office wages
Owner's salary	A market wage for running the business	Owners who "just take draws" leave this out entirely
Vehicles	Truck payments or depreciation, fuel, insurance, repairs, tires, GPS	Replacement fund for the next truck
Facility	Shop or yard rent, utilities, storage, shop supplies	The warehouse share of a home office
Insurance and licensing	General liability, commercial auto, umbrella, bonds, license renewals	Annual premiums paid in one lump
Sales and marketing	Ads, Local Services Ads, website, signage, truck wraps	Unbooked leads you paid for
Technology and phones	Field service software, phones, accounting software, call tracking	Per-user fees that grow with headcount
Professional fees and finance	CPA, legal, bank fees, loan interest	Card processing (often better treated per job; see contribution margin)
Unbilled field time	Training days, shop time, warranty callbacks	Some shops put this in overhead, others in labor burden; pick one

How do you calculate overhead for a contracting business?

Add up 12 months of overhead from your books, then divide by the base you price with: revenue, billable hours, direct costs or jobs. Each gives a different overhead rate, and each answers a different pricing question. Use last year's actual numbers, adjusted for anything you know is changing this year.

Overhead rate formulas

Overhead % of revenue = Overhead ÷ Revenue   |   Overhead per billable hour = Overhead ÷ Billable hours   |   Overhead % of direct cost = Overhead ÷ Direct costs

Overhead: 12 months of indirect costs, including a market salary for the owner
Revenue: 12 months of billed revenue, before sales tax
Billable hours: hours techs spent on work a customer paid for, not hours on payroll
Direct costs: materials, burdened field labor, subcontractors, permits and disposal

The overhead rate calculator runs these numbers from your own totals, and the contractor hourly rate calculator shows how overhead per hour feeds into what you charge.

Which overhead rate should you use?

Use the rate that matches how you price. Each one plugs into a different part of the estimate, and all of them come from the same overhead total.

Overhead rates and what each one is for
Rate	Example (from above)	Use it to	Watch out for
% of revenue	30%	Set your target gross margin: overhead % plus profit %	It shifts if your revenue mix changes
Per billable hour	$69.23	Build an hourly or flat-rate labor price	Billable hours drop in slow season, so the real rate rises
% of direct cost	46.2%	Apply as a markup on cost for bid work and cost-plus jobs	Material-heavy jobs end up carrying more overhead than they create
Per job	$225	Sanity-check small tickets and set a minimum service charge	Big and small jobs don't use the same overhead
Per day	$1,440	Know what a rain day or an empty schedule costs you	It doesn't tell you how to price a specific job

Overhead by trade

Every trade carries overhead, but the big lines and the best way to allocate them differ.

Biggest overhead lines and the allocation that fits, by trade
Trade	Biggest overhead lines	Allocation that usually fits	Why
HVAC	CSRs and dispatch, fleet, seasonal marketing	Per billable hour	Service work is priced by the task or hour, and demand swings by season
Plumbing	Stocked trucks, on-call coverage, office staff	Per billable hour	Many short jobs a day; overhead is driven by tech time
Electrical	Estimating time, licensing and training, vehicles	Per hour for service; % of direct cost for bids	Bid work and service work behave differently
Roofing	Sales team and lead costs, production office, warranty reserve	% of revenue or per roof	Few large jobs; overhead follows sales effort more than crew hours
Landscaping	Equipment, trailers, yard, winter payroll	Per crew-hour, recovered over the working season	Twelve months of overhead has to be earned in the months crews can work
Cleaning	Hiring, training, supervision, insurance and bonding	Per labor hour	Nearly all cost is labor, so hours are the natural base

Overhead vs. direct costs

Direct costs exist because of a specific job; overhead exists because the business does. A tech's wage on a service call is a direct cost. The dispatcher who sent that tech is overhead. Keeping the two separate in your books is what makes job costing and a readable profit and loss statement possible.

Overhead is also different from labor burden. Burden is the extra cost on top of each field employee's wage (payroll taxes, workers' comp, benefits, paid time off) and belongs in direct labor cost. Overhead is everything the business spends that isn't tied to a job.

Common overhead mistakes

Leaving out the owner's salary. If you'd have to pay someone to do your job, that wage is overhead.
Dividing by paid hours. It understates overhead per hour by the share of hours nobody pays for.
Using an old number. A new truck, an office hire or an insurance renewal can move your rate several dollars an hour.
Forgetting annual and lumpy costs. Insurance premiums, license renewals and software paid yearly belong in the total.
Putting field labor in overhead. It inflates overhead and overstates gross margin at the same time.
Applying one rate to everything. A material-heavy install and a labor-heavy repair shouldn't carry overhead the same way.

Frequently asked questions

How do you calculate overhead percentage for a contractor?

Divide 12 months of overhead by 12 months of revenue. $360,000 of overhead on $1,200,000 of revenue is 30%. That percentage, plus the net profit you want, is the gross margin your prices need to hit on average.

How do you add overhead to an hourly rate?

Divide annual overhead by annual billable hours and add the result to your burdened labor cost per hour, then add profit. With $69.23 of overhead per billable hour and $45 of burdened labor, the break-even labor rate is $114.23 before any profit.

What is a typical overhead percentage for contractors?

It depends heavily on trade, size and how much office staff and marketing you carry, and there's no reliable public average for small trades shops. Calculate yours from your own books. Service companies with CSRs, dispatch and stocked trucks generally carry more overhead per revenue dollar than bid-based install work.

Is a truck overhead or a job cost?

Most small trades businesses treat trucks as overhead: payments or depreciation, insurance, fuel and repairs. Some allocate fuel or mileage per job. Either works if you're consistent and your pricing covers it.

Is the owner's salary overhead?

Yes, for the part of your time spent running the business: estimating, sales, scheduling, bookkeeping. If you also work in the field, the field share of your pay is a direct labor cost. Leaving your salary out of overhead makes jobs look more profitable than they are.

How often should I recalculate my overhead rate?

At least once a year, and any time a big fixed cost changes: a new truck, a new office hire, a move, or a large insurance renewal. Checking it quarterly against billable hours shows whether slow months are pushing your real rate up.