Overhead is the silent profit killer in contracting businesses. Unlike material costs that you can see on receipts and labor costs that you track on timesheets, overhead expenses accumulate quietly across a dozen categories: vehicle costs, insurance premiums, tool replacement, shop rent, phone plans, software subscriptions, marketing spend, licensing fees, and continuing education. Most contractors know their total overhead is 'somewhere around' a monthly number, but few have broken it down precisely and converted it to a per-billable-hour cost. That conversion is critical because it determines how much overhead to allocate to every job estimate. This calculator walks through each category, sums your total monthly and annual overhead, and divides by your billable hours to give you a concrete dollar amount that belongs in every hourly rate and job estimate.
✓ Overhead Calculator
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Overhead per billable hour-
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✓ What counts as overhead
Overhead is every cost of being in business that you cannot bill to a specific job. The ten lines above cover what most trade businesses pay; add anything else under Other, such as uniforms, shop supplies or dues. Leave out job materials, subcontractors and the wages of people billed on jobs: those are direct costs.
Use real numbers from the last twelve months of bank and card statements rather than guesses. Most contractors who do this for the first time find overhead 20% to 40% higher than they assumed.
✓ Overhead per billable hour
Overhead per hour = total annual overhead ÷ billable hours per year
With $41,700 of overhead and 1,400 billable hours, every hour you bill carries about $29.79 of overhead before your own pay or any profit. That figure is the first building block of a rate. Compare your total with typical ranges on the overhead percentage page.
✓ Frequently Asked Questions
What counts as overhead for a small contractor?
Overhead is any business expense that does not directly tie to a specific job. The most common categories for contractors include: vehicle payments, fuel, insurance, and maintenance; general liability and umbrella insurance; tools and equipment purchases or replacements; shop, office, or storage rent; phone, internet, and technology; bookkeeping software and subscriptions; advertising, website, and business cards; professional licenses and permit fees; continuing education and safety training; uniforms and safety gear; and association memberships. If you would pay for it even on a day with no jobs, it is overhead.
What is a typical overhead percentage for small contractors?
Small contractors typically run 25-45% overhead as a percentage of revenue. Solo operators with low fixed costs might be at 20-30%. Contractors with employees, a shop, and multiple vehicles often run 35-50%. The percentage itself is less important than knowing your absolute number and allocating it correctly to each job. A contractor with 40% overhead who prices accordingly is more profitable than one with 25% overhead who ignores it in estimates.
How do I calculate overhead cost per billable hour?
Divide your total annual overhead by your annual billable hours. If your overhead is $48,000 per year and you bill 1,200 hours, your overhead cost is $40 per billable hour. This number should be added to your labor cost (or burdened labor cost) when calculating your hourly rate. Many contractors are shocked to discover their overhead per hour is $30-60, which explains why charging $50/hr for skilled trade work barely breaks even.
Should equipment purchases be classified as overhead or direct costs?
It depends on how the equipment is used. A tool that you use across many jobs over years (your work truck, your general tool set, diagnostic equipment) is overhead, typically amortized monthly. A tool purchased specifically for one job (a specialty fitting kit for a particular HVAC install) is a direct job cost. The distinction matters for accurate job costing: if you charge a specialty tool to overhead instead of the job that required it, every other job subsidizes that expense.
How often should I recalculate my overhead?
At minimum, annually. Many expenses change yearly: insurance premiums adjust, software prices increase, you add or remove a vehicle. Some contractors recalculate quarterly, which catches mid-year changes like a new tool purchase or a lease renewal at different rates. The most disciplined approach is to track actual overhead monthly and compare it against your projected overhead to catch drift early.