What counts as overhead
Overhead, sometimes called burden or indirect cost, is everything your business pays for that cannot be assigned to a single job. The customer in front of you is not the only reason these costs exist, but every job needs to help pay for them.
- Vehicle payments, fuel, insurance, and maintenance.
- Business insurance and license fees.
- Tool and equipment purchases and repairs.
- Phone, software, and office costs.
- Advertising and marketing.
- Accounting, bookkeeping, and bank fees.
- Your non-billable time: quoting, invoicing, and supply runs.
The hidden cost of unbillable hours
That last item surprises people. The hours you spend writing estimates are real work, and the jobs you win have to pay for the time spent quoting the ones you lose. Ignore that time and your prices will always be a little too low.
How to find your overhead number
Pull a year of bank and card statements and total every expense that was not materials or direct job labor. That sum is your annual overhead. If you are just starting out, list each expected cost and estimate it generously, because new businesses almost always undercount.
Say your overhead for the year adds up to $24,000, a purely hypothetical number, and you expect to bill 1,200 hours. Your overhead cost is $20 per billable hour. Every hour you work carries that $20 whether you think about it or not, which is why a wage-only rate quietly loses money.
Two ways to recover overhead
There are two common methods for building overhead into prices, and both work if you apply them consistently.
| Method | How it works | Best for |
|---|---|---|
| Per-hour allocation | Divide annual overhead by billable hours and add it to your hourly cost | Hourly or time-and-materials work |
| Percentage markup | Add a percentage on top of materials and labor that covers overhead | Flat-rate and materials-heavy jobs |
Pick one method and stick to it
Many contractors blend the two: overhead goes into the loaded hourly rate, and a separate markup on materials covers purchasing and handling. The method matters less than doing it the same way every time, so finished jobs can be compared honestly and your prices stay explainable.
Profit is not overhead, and it is not optional
Once materials, labor, and overhead are covered, profit is what is left. It is not greed and it is not a bonus; it is the money that covers slow months, replaces the truck when it dies, funds growth, and pays you for the risk of owning the business instead of collecting a paycheck.
Decide on profit deliberately, the same way you decided on salary. Many contractors add 10% to 20% on top of full cost as common practice, but the right number depends on your goals and your market. What is never right is zero, because a business that only breaks even on paper still falls behind as equipment wears out.
Build both into every estimate
Here is the full stack on a hypothetical small job with round numbers. Materials are $500, labor is 8 hours at a $50 loaded rate, which is $400, and overhead at $20 per hour adds $160. Total cost is $1,060. Add 15% for profit and the price is about $1,220. Every layer is visible, so if the customer asks why the number is what it is, you have a real answer.
This is also where tooling earns its keep. EstimateBook drafts itemized estimates from a voice, text, or photo description, and you can adjust quantities, prices, and a global markup before sharing the PDF, which makes it easy to apply the same overhead and profit logic on every job. The draft is a starting point; you review the numbers before the customer sees them. For the markup mechanics, see the contractor markup guide, and for the end-to-end method, how to price contractor jobs.