Overhead

What is overhead?

Overhead includes all the expenses that keep your business functioning but aren't directly billed to any specific job. You pay overhead whether you complete one project this month or ten. These costs exist in the background, eating into your profits on every job you do.

Understanding overhead is crucial for pricing work correctly. If you only price for direct job costs, you'll lose money.

Common overhead expenses

For contractors and small businesses, typical overhead includes:

• Rent — Office, shop, or storage facilities
• Insurance — Liability, vehicle, workers' comp premiums
• Utilities — Electric, gas, water, internet, phone
• Vehicle costs — Payments, registration, general maintenance
• Office expenses — Supplies, equipment, software subscriptions
• Professional fees — Accountant, lawyer, licensing
• Marketing — Advertising, website, business cards

Covering overhead in your pricing

Your prices need to cover direct job costs, overhead, AND profit. If your monthly overhead is $5,000 and you complete 10 jobs, each job needs to contribute at least $500 just to cover overhead—before any profit. Factor this into your markup.