Guide

What overhead should be as a percent of revenue

Two real bands depending on whether you're solo or running a crew, what actually counts as overhead versus job cost, and the formula that turns your percentage into a dollar figure you charge per hour.

The two bands

There's no single right number, but there are two workable ranges depending on how you're set up.

• Solo owner-operator (no employees, maybe a helper day-to-day): overhead should sit around 18-28% of revenue.
• One crew (you plus a small permanent team): overhead typically climbs to 25-35% of revenue.

The jump happens because a crew needs supervision time, more vehicles, more insurance, payroll admin, and usually a bigger marketing spend to keep two or three people busy instead of one. If you're above 35% with only one crew, something in the mix is bloated or your revenue is too low for the fixed costs you're carrying.

What actually goes in the overhead bucket

Overhead is everything you pay to keep the business open, whether or not you complete a single job this month. If a cost exists independent of any specific job, it's overhead.

Overhead item	Typical range (solo)	Typical range (one crew)
Vehicle (payment, fuel, insurance, maintenance) — non-job-specific portion	4-8% of revenue	5-9%
General liability & business insurance	2-4%	3-5%
Phone, software, subscriptions	1-3%	1-2%
Advertising & marketing	2-6%	3-7%
Licences, permits, professional fees	1-2%	1-2%
Accounting & bookkeeping	1-2%	1-2%
Office/shop rent, utilities	0-3%	2-5%

Add those up and you land somewhere in the 18-28% solo band or 25-35% crew band. If your total is materially higher, work through the list line by line before you assume the percentage itself is wrong.

What must never sit in overhead

This is where most contractors quietly wreck their pricing. Job cost is anything that changes because you took on a specific job. It belongs in the price of that job, not in your overhead percentage.

• Materials bought for a specific job.
• Subcontractor pay for work done on a specific job.
• Labour for the crew actually doing the job (their wages while on-site).
• Equipment rental hired for one job.
• Dump fees, permits tied to one job.

If any of these are buried in your overhead figure, your overhead percentage will look artificially high, and worse, it won't scale. Job costs grow in a straight line with revenue. Overhead should grow much more slowly. Mixing the two means you can never tell if a job made money or if the business as a whole is healthy.

The subcontractor audit

The single most common leak: subcontractor payments get coded as a general expense in the books instead of tied to the job they were on. Run this check once a quarter.

1. Pull every subcontractor payment from your books for the period.
2. Match each payment to the job it was for. If you can't match it to a job, that's a red flag on its own — either the invoice is wrong or you're paying for something with no job attached.
3. Move every matched payment out of "overhead" or "outside services" and into that job's cost.
4. Recalculate your overhead percentage without those payments in it.

It's common to find overhead drop by 5-10 percentage points once subcontractor pay is stripped out and correctly assigned. That's the difference between thinking you're at 32% (crisis territory) and realising you're actually at 24% (fine) — the subcontractor cost was just sitting in the wrong bucket the whole time. Run individual jobs through a job profitability calculator to keep this separation clean going forward.

Turning the percentage into a price: the recovery formula

Knowing your overhead percentage is only useful if it changes what you charge. The formula is:

Annual overhead ÷ annual billable hours = overhead recovery rate, in dollars per hour, before any profit.

Worked example:

• Annual overhead: $34,000
• Annual billable hours: 1,150 (this is hours you can actually bill a customer for — not hours in the year, not hours at work including driving, quoting and admin)

$34,000 ÷ 1,150 = $29.57 per hour.

That $29.57 has to be added to every billable hour before you've made a cent of profit or covered your own wage draw. Add your labour cost per hour, your materials markup, and your target profit margin on top of that, and you get your real charge-out rate. This is exactly the calculation behind the hourly rate calculator, and it's worth running your own numbers through it rather than guessing.

Billable hours matters as much as the overhead figure. A solo operator working a 2,000-hour year might only bill 1,100-1,300 of those hours once you strip out driving, quoting, admin, and non-billed callbacks. If you use 2,000 hours in the formula instead of the real billable figure, you'll under-recover overhead on every job and not know why the bank balance never grows.

Sanity-check against break-even

Once you know your overhead recovery rate, check it against your actual break-even point — the revenue you need each month just to cover overhead and job costs, before profit. If your priced jobs, run through the recovery rate above, don't add up to clearing break-even most months, either your rate is too low, your billable hours are too optimistic, or your overhead genuinely needs cutting. The break-even calculator and markup and margin calculator are both built for exactly this check.

What to do if you're outside the bands

If you're solo and above 28%, or running a crew above 35%, work through this order:

1. Run the subcontractor audit above first. It's the most common false alarm.
2. Check advertising spend against actual lead volume. Cutting blind spend is often the fastest fix.
3. Review vehicle costs — a payment on a truck bigger than the job requires is a slow bleed.
4. Only after those three, look at whether revenue itself is too low to support the fixed costs you've already committed to. Sometimes the answer isn't cutting cost, it's raising prices or booking more billable hours.

Overhead percentage is a diagnostic, not a target to chase for its own sake. Get the buckets right, run the recovery formula on real billable hours, and price from that number every time you quote.