Example
$24,000 of overhead across 1,200 billable hours adds $20 an hour to every rate.
Also called fixed costs, running costs, or indirect costs.
What it means in practice
Insurance, the van, the phone, software, the accountant, the hours you spend quoting. Overhead is real money, it is spent whether or not you work this week, and it has to be recovered inside your prices.
The usual method is to total the year's overhead, divide it across the hours you expect to bill, and carry that figure into every rate. A rate built from wages alone is a rate that loses money.
Where it shows up on the paperwork
Overhead never prints. It is recovered inside every rate you quote, which is why a rate built from wages alone loses money on every hour.
What goes wrong
- Leaving your own unbilled time out: quoting, driving, invoicing and chasing are hours nobody pays for directly.
- Dividing overhead across the hours you work rather than the hours you bill, which is always a smaller number.
- Recalculating it once and never again, while insurance and fuel move.
Common questions
How do I work out my overhead rate?
Total a year of overhead, divide by the hours you expect to bill in that year, and carry the result into every hourly rate. $24,000 across 1,200 billable hours adds $20 an hour.
What counts as overhead rather than job cost?
Anything you would still pay in a week with no work: insurance, the van, the phone, software, the accountant, your own admin time.