Overhead cost calculator

Calculator by CrewBrain ↗

Many overhead calculators online were built for factories. They ask for units produced, or they spread overhead over labor dollars. A service company does not make units. It sells crew hours. This page shows how to work out overhead the way a company that runs crews actually earns money: per billable hour, per job, and as a share of your sales.

What overhead is, and what it is not

Overhead is the cost of keeping the business open. You pay it whether or not a crew goes out today. Job costs are the costs that come from doing one specific job: the crew's time on that job (including drive, loading and setup), the materials, and the truck and fuel to get there.

A simple test: if you skipped this one job, would the cost go away? If yes, it is a job cost. If you would still pay it, it is overhead.

The one rule that matters most: count each cost once. If you charge fuel to each job, do not also put the same fuel in the vehicles box.

What each box in the calculator means

Enter monthly amounts. For bills you pay once a year, such as insurance renewals or licences, divide by 12.

• Rent and office: rent, shop or yard, utilities, office supplies, cleaning.
• Office staff wages: pay for everyone who does not work on jobs, with their payroll costs. Put your own pay here too. Use what you would have to pay someone else to do your job.
• Vehicles not tied to a job: payments, insurance and fuel for the owner's truck, the estimate car, or a spare truck that sits most days.
• Insurance: general liability and any business policy not already counted in your crew's hourly cost.
• Software and phones: your office software, phone lines, internet and cell plans.
• Advertising: ads, website, listings, signs, flyers and referral rewards.
• Other: accounting, bank and card fees, licences, small tools for the shop, and paid crew time with no job attached.
• Billable people: crew members whose hours go onto jobs. Do not count office staff.
• Billable hours per person per week: hours that end up in job costs, which means time on site plus drive, loading and setup for jobs. Not their paid hours. A crew member paid for 40 hours rarely bills 40.
• Working weeks per year: weeks you actually run jobs, after holidays, slow season and bad weather.
• Yearly revenue: what you expect to sell this year. Use a number you can count on, not your best year.

The results are your yearly overhead, your overhead per billable hour, and overhead as a share of revenue.

How to calculate overhead: the formulas

1. Yearly overhead = monthly overhead total × 12.
2. Billable hours per year = billable people × billable hours per person per week × working weeks.
3. Overhead cost per hour = yearly overhead ÷ billable hours per year.
4. Overhead cost per job = overhead per hour × the crew hours that job takes. Two people for four hours is eight crew hours.
5. Overhead percentage = yearly overhead ÷ yearly revenue × 100.

Some guides tell you to find overhead per job by dividing yearly overhead by the number of jobs you do. That only works if every job is the same size. A one-hour job and a two-day job should not carry the same overhead. Using crew hours fixes that.

Why factory overhead formulas mislead service owners

Two common formulas come from manufacturing, and both can steer a service company wrong.

• Overhead per unit produced. You do not produce units. Your crews sell time. The closest thing you have to a unit is one billable crew hour, which is what this calculator uses.
• Overhead as a percent of direct labor cost. Direct labor cost means your crew's wages. This method spreads overhead by wage dollars. Give your crew a raise and every job suddenly carries more overhead, even though your rent did not change. A job done by your best-paid lead gets charged more overhead than the same job done by a newer worker.

Much of a crew company's overhead grows with how many crews you run: more trucks, more scheduling, more office time, more insurance. So spreading it by crew hours tracks the real cause. Overhead as a share of revenue is still useful as a health check, which is why the calculator shows it too.

Worked example: a six-person crew company (illustrative numbers)

These are made-up numbers to show the steps. They are not a benchmark. Use your own books.

The company has 6 billable people, each billing 30 hours a week, for 46 weeks. That is 6 × 30 × 46 = 8,280 billable hours a year.

• Overhead per billable hour: $192,000 ÷ 8,280 = about $23.19.
• Overhead as a share of revenue, on $700,000 of expected sales: $192,000 ÷ $700,000 = about 27.4%.

Now take one job: 2 people for 4 hours each, drive and setup included. That is 8 crew hours. The job's overhead share is 8 × $23.19 = about $186. That is money the job has to bring in before it earns a cent of profit.

How to recover overhead in every price

There are two sound ways to make sure each price pays its share. Both start with the job costs. In the example job: 8 crew hours × $32 full cost per person-hour = $256, plus $40 materials, plus $35 truck and fuel. Job costs are $331 (illustrative).

Method 1 charges overhead by the hours a job takes. Method 2 charges it by the size of the job costs. This job uses lots of crew time and cheap materials, so method 2 gives it less overhead than its hours really use. For a company that sells crew time, method 1 usually gives the safer lowest price. Method 2 is a good quick check across all your work. Our guide on what a good profit margin is for a service business walks through setting that margin target.

To turn your numbers into a price for a real job, put your job costs and the margin you need into the job price calculator. If you are not sure what one person-hour really costs you, start with the labor burden calculator.

Common overhead mistakes

• Leaving your own pay out. The business looks cheaper to run than it is, and you end up working for free.
• Dividing by paid hours instead of billable hours. That makes overhead per hour look small, so every price comes in low.
• Counting the same cost twice. Fuel in job costs and in the vehicles box, or crew insurance in both the person-hour cost and the insurance box.
• Forgetting the once-a-year bills. Insurance renewals, licences, accounting and equipment repairs hide easily in a monthly view.
• Using your best year's sales. Overhead is paid whether the work comes or not. A hopeful revenue number makes the overhead share look smaller than it will be.
• Setting it once and forgetting it. Run it again every quarter, and any time you hire office staff, add a truck or move to a bigger shop.

What to do if your overhead per hour is too high

A high number is not always a reason to cut costs. Often the costs are fine and the hours are the problem. There are three levers:

1. Bill more of the hours you already pay for. Tighter schedules, less waiting between jobs and shorter drives all add billable hours. The same overhead spread over more hours costs less per hour.
2. Price for the number you have. If the math says $23 an hour, every quote needs to carry it. Find the jobs that do not and fix those first.
3. Cut what does nothing. Unused subscriptions, ads you cannot trace to jobs, and a spare truck that never moves.

You can only manage billable hours if you can see them. In CrewBrain, crew clock in and out from the app and hours are tracked by job, so you can compare the hours each job really took with the hours you priced, and see what each job cost against what you charged. That is the core of job costing for service companies.

Keep reading

• Hourly rate calculator: what to charge per billable hour
• Job price calculator: test a quote with your own costs
• What is a good profit margin for a service business
• How to price a service job, step by step
• How to set a trip charge that covers the drive

Questions owners ask