Why Overhead Matters So Much
Every hour you work, your overhead clock is running. If you have $6,000/month in overhead and work 150 billable hours per month, you need to recover $40 per billable hour just to break even on overhead — before paying yourself anything.
A common mistake: pricing labor at "what competitors charge" without knowing if that rate covers your specific overhead. A large company with 10 trucks and a full office has very different overhead than a solo operator with one truck and a home office. Their rate might be their minimum survival rate and way below yours.
Complete Overhead Cost Checklist
Go through this list and total your monthly cost for each item. Include items even if they're annual — divide by 12 to get the monthly amount.
Insurance
- General liability insurance
- Workers' compensation
- Commercial auto insurance
- Tools & equipment insurance
Vehicle Costs
- Vehicle payment(s)
- Fuel
- Maintenance and repairs
- Registration and fees
Equipment
- Tool purchases (amortized)
- Equipment rentals (not job-specific)
- Equipment maintenance
- Equipment storage
Labor Overhead
- Payroll taxes (FICA — 7.65% employer share)
- Unemployment insurance (FUTA/SUTA)
- Workers' comp (if not separate)
- Benefits
Office & Admin
- Accounting software
- Business phone
- Office supplies
- Professional services (accountant, lawyer)
Marketing
- Website and hosting
- Online ads
- Business cards, signage
- Lead generation services
Licenses & Permits
- Contractor's license renewal
- Business license
- Trade-specific certifications
- Required permits (overhead, not job-specific)
How to Calculate Your Overhead Per Hour
Total monthly overhead (all items above) = $X,XXX
÷ Monthly billable hours (hours on jobs) = XXX hours
= Overhead cost per billable hour
Example: $5,000/month overhead ÷ 120 billable hours = $41.67 overhead per hour. If you pay yourself or your crew $35/hour in wages, your actual cost per hour is $76.67 before any profit.
Your hourly rate to customers needs to cover: overhead per hour + labor cost per hour + profit margin. Many contractors charge $75–$125/hour in skilled trades — and with high overhead or less-than-full billable schedules, margins are much tighter than they appear.
The Billable Hours Problem
Contractors rarely have 100% billable hours. You spend time on:
- • Estimating and bidding (typically 10–20% of time)
- • Material purchasing and delivery
- • Admin, invoicing, collections
- • Drive time between jobs
- • Callbacks, warranty work, and repairs
- • Training, licensing, and downtime
A contractor who works 40 hours/week likely has 25–30 billable hours per week — meaning overhead is divided by a smaller number, increasing the per-hour overhead rate significantly. Calculate based on realistic billable hours, not total working hours.
How Often to Review Overhead
At minimum, recalculate overhead every 6 months. Review immediately when:
- • You add a vehicle, employee, or equipment
- • Your insurance renews (rates often change)
- • You add a new software subscription or service
- • Fuel or material costs change significantly
- • Your billing volume changes substantially
Track Overhead Automatically in CogniFlow Books
Enter your monthly overhead once in CogniFlow Books — and every estimate automatically runs a Price Check showing whether your job price covers your full overhead cost and your target margin.
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