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Your Overhead Rate Is Probably Wrong. Here's How to Calculate the Real One.

May 30, 2026 · 7 min read

Ask most service business owners what their overhead rate is and you'll get a blank stare. That blank stare is why so many of them work flat-out all year and still wonder where the money went. Overhead is real, it's constant, and if you don't bake it into your quotes, it eats your profit one job at a time.

Short answer: Your overhead rate is your annual overhead divided by your annual direct costs. If you spend $36,000 a year on overhead and $120,000 on direct job costs, your rate is 30% — every $100 of direct cost on a job needs $30 added just to break even, before any profit.

What overhead actually is

Overhead is every cost of running your business that isn't tied to a specific job. Labor and materials for a job aren't overhead — those are direct costs. But your truck payment, fuel, insurance, phone, scheduling software, advertising, and the hours you spend on quotes and invoicing? That's all overhead. It rolls on whether you booked one job this week or fifteen. (For a fuller plain-English definition, see Pricing Decoded.)

Step 1: Add up your annual overhead

Pull a year of records and total every recurring business cost that isn't direct job labor or materials. A typical list:

• Vehicle payment, fuel, maintenance, and insurance
• Business insurance and licenses
• Phone, internet, and software subscriptions
• Advertising and your website
• Office or storage rent, if any
• Admin time — the unpaid hours you spend quoting, scheduling, and chasing invoices

Say it all comes to $36,000 a year. That's the number every job has to help carry.

Step 2: Add up your annual direct costs

Now total what you spend actually doing the work across the year — your burdened labor plus materials. (If you're not sure what "burdened labor" means, that's the single most important number in pricing and worth a read.) Say your direct costs run $120,000 a year.

Step 3: Do the division

Your overhead rate is simply overhead divided by direct costs:

$36,000 overhead ÷ $120,000 direct costs = 0.30, or a 30% overhead rate

That means for every $100 of direct cost on a job, you need to add $30 just to cover the cost of being in business — before a cent of profit. Now you have a real number to apply to every quote instead of hoping it works out.

Applying it to a job

Say a job has $200 in direct costs (burdened labor + materials). Apply your 30% overhead:

• Direct costs: $200
• Overhead at 30%: $60
• Break-even cost: $260

Only now do you add profit on top. Quote that same job at $240 because you forgot overhead, and you didn't make a small profit — you lost $20 and paid for the privilege of working.

How often should you recalculate?

Once a year is enough for most small operations, or any time something big changes — you buy a second truck, take on rent, or ramp up ad spend. Your overhead rate drifts as your business grows, and a rate that was right two years ago can quietly leave you underpriced today.

The shortcut

If tracking a full year of numbers sounds like a project you'll never get to, you're not alone — and that's the whole reason SolidScope exists. Set your overhead percentage once and every quote applies it automatically, on top of your burdened labor, before profit. No spreadsheets, no forgetting.

Keep reading: Margin vs. Markup — the mistake that costs you on every job →