2026 True Overhead Rate Calculator

How Our Overhead Rate Calculator Works

Our overhead rate calculator does one piece of math, the piece most contractors have never been shown. It takes your total overhead for the year and divides it by your direct labor hours for the year. What comes out is your overhead rate per hour, the amount every single field hour has to bring in before wages, before burden, and before one dollar of profit. In under a minute you will see the number your bids have been guessing at. Here's the thing. Overhead is not a percentage you slap on at the end. It is a real cost per hour, and the contractors who price it that way stop losing money on jobs they thought they won.

What Is an Overhead Rate?

Your overhead rate is the amount every labor hour has to earn just to cover the cost of keeping your company open. Take everything the business costs you before a single job gets built, the rent, the office, the trucks, the insurance, your own pay, and divide it by the hours your people actually work on jobs. What comes out is your overhead rate per hour. It is not profit. It is not wages. It is the ticket price of being in business, and every hour you sell has to pay it before you keep a dime. That is the number this calculator shows you.

How to Calculate Your Overhead, Step by Step

The short answer: add up everything it costs to run the company for a period, then divide it by the direct labor hours your people worked in that same period. The hours that actually get billed out, not office hours. What comes out is your overhead rate per hour, the amount every working hour has to earn before wages, before burden, and before one dollar of profit. Here is the whole method.

Step 1. Pick your period. A full year is cleanest, but any period works as long as your overhead, your hours, and your revenue all cover the same stretch.

Step 2. Add up every overhead dollar. Everything in the lists below: the rent, the office and owner pay, the indirect labor, the trucks and insurance, the fixed bills, the variable ones, the sneaky in-betweens, and the money you never collect. Leave nothing out.

Step 3. Add up your direct labor hours. The hours your people actually worked on jobs in that same period. Billed-out hours, not office hours.

Step 4. Divide dollars by hours. That is the whole formula. Overhead dollars divided by direct labor hours equals your overhead rate per hour. Say your overhead came to $293,000 and your crews worked 18,000 hours. That is $16.28 every single hour has to earn before wages, before burden, and before one dollar of profit. Illustrative numbers, but the math is the math.

Step 5. Keep it current. Your overhead moves every time you hire, let someone go, hand out a raise, or add a truck. A rate from last year is like bidding with last year's copper price. Check it monthly, never yearly.

The calculator above does Step 4 for you in seconds. And if you want Mark to walk the whole method with you on video, watch the free overhead masterclass.

The Four Costs That Make Up Your Overhead

Your overhead is not one bucket. It is four. And if any one of the four is missing, the rate you just calculated is lower than the truth.

Fixed costs stay the same every month whether you are busy or slow. Rent, insurance, the office lights. You pay them in February and you pay them in July.

Variable costs move with the work. Fuel, small tools, supplies. Busy months they climb, slow months they fall, and they belong in your overhead just the same.

Semi-variable costs are the sneaky ones. Part of the bill stays fixed and part moves with the work, like phone plans and utilities. Most contractors only count half of them.

Indirect labor is the big one everybody misses. The office staff, the project manager running job to job, and your own time as the owner. If a person's hours do not get billed to one job, their cost lives in your overhead.

Is That Number Even Right?

Here's what nobody tells you. A number built on half your overhead is worse than no number at all, because it feels safe and it isn't. Most contractors leave out more than they put in. So look at the list. Did you count all of it?

• Your own time, the owner's pay
• Your project managers, when they are running job to job instead of billing to one
• Your office and indirect labor, the people who keep it all moving
• Your trucks, your gas, your phones, your tools, your insurance
• Your fixed costs, your variable costs, and the ones that move around in between
• The customers who never pay you

If any of that is missing, your real overhead rate is higher than the number you just saw. Which means you have been bidding low and not even knowing it.

One Number for the Whole Company Is the Wrong Number

Here's the next thing. Even if you captured all of it, one blended rate for the whole company will still burn you. Every division carries its own overhead. Your service work, your commercial work, your new construction, they each run at a different rate and a different breakeven. Carry one average across all of them and you will bid the wrong jobs at the wrong number. You win the ones you should have walked away from, and you lose the ones you should have had. That is how a busy company stays broke.

What Percentage Should Your Overhead Be?

Contractors ask us this all the time, and so does every service business owner we teach. And it is the wrong question. There is no right percentage, because a percentage moves every time your revenue moves, and your bills do not care. The books say ten percent. The books are wrong. When we calculate a company's real overhead, we have seen it land at twenty percent of revenue, thirty, forty five, even past sixty. There is no normal number. There is only your number, and it is a real dollar amount, not a percentage. The only honest way to carry it is as a rate per hour, spread across the hours your people actually work. Chase a percentage and you will underprice the small jobs and overprice the big ones, and both mistakes cost you money. Run the calculator above and get the hourly truth instead.

What This Calculator Does Not Account For

This calculator shows your overhead rate, and only that. It is the starting number, not the whole bid. It does not account for what actually decides whether a job makes money, and that is where the rest of your numbers come in.

Your direct labor rate. The real average wage of the crew you will put on the job, the foreman and the journeyman and the apprentice blended together. It changes job to job.

Your labor burden. The taxes, workers comp, and benefits that ride on every wage dollar you pay. It is not optional and it is not small.

Your efficiency rates. A service call and a commercial rough-in do not produce at the same speed, and pricing them like they do is how good jobs go bad.

Your division costs. Every division carries its own overhead, its own breakeven, its own efficiency. One blended number bids the wrong jobs.

Your breakeven rate. Overhead plus burden plus labor is your floor. Bid under it and you are paying to work.

Want to Get It Right?

The masterclass walks through every one of these, in order, with the math on the board. Watch the free overhead masterclass: taught by Mark, start to finish. And keeping all of it current, split by division, is what the MyOverhead system does.