Calculate the overhead percentage to add to every job to stay profitable
What you pay yourself and/or employees in direct labor
A $5,000 job with $3,000 in labor and $2,000 in materials:
Overhead is every business cost that is not directly tied to a specific job. Your truck payment happens whether you are on a job or not. Your insurance renews every year whether you do one job or 100. Your accountant charges you regardless of revenue. These costs must be recovered across all your jobs or you will steadily go broke even while staying busy.
The most dangerous contractor is a busy one who ignores overhead. They win bids, stay fully booked, and wonder why they have no money at the end of the year. The answer is overhead that was never baked into job pricing. Every dollar of overhead that is not recovered in your quotes is a dollar that comes out of your own pocket.
Review your overhead costs quarterly. Are you paying for subscriptions you don't use? Can you renegotiate your insurance? Is your vehicle the right size for your work? Small reductions in overhead directly increase your profit on every job. Even cutting $200/month in overhead adds $2,400/year to your bottom line.
Overhead rates vary by trade and company size. Solo contractors typically see 10–20% overhead rates. Small companies with 2–5 employees run 20–35%. Mid-sized contractors with multiple crews and a shop can reach 40–60%. The key is knowing your actual number — not guessing at an industry average.
What is a typical overhead rate for a contractor?
Solo contractors typically see 10–20% overhead rates relative to direct labor. As you add employees and equipment, overhead climbs. The most important thing is to calculate your actual number rather than using an industry benchmark, since your business costs are unique.
How often should I recalculate my overhead rate?
Review it quarterly, and definitely recalculate when you add a major expense (new truck, employee, shop space) or drop one. An outdated overhead rate can silently erode your profitability for months before you notice.
Should I show overhead as a line item on client quotes?
Generally no. Clients do not need to see your internal cost structure. Present a single labor rate that already includes your overhead recovery. Showing overhead as a separate line item invites negotiation over a cost that is not negotiable — it is simply the cost of running your business.
What is the difference between overhead and profit?
Overhead covers the cost of running your business (fixed and variable non-job costs). Profit is what remains after you have covered all costs — it is your return for the risk of owning and operating a business. Both must be included in your job pricing or you are either breaking even or losing money.
My overhead rate seems high — what can I do?
First, verify every line item is accurate. Then look for genuine waste. Common targets: unused software subscriptions, over-insured vehicles, excessive marketing spend with no ROI. The other lever is increasing revenue — more billable hours spreads fixed overhead over a larger base, reducing the effective rate per dollar of labor.
Connect with landlords in your area who need reliable contractors. VerticalRent handles the client matching — you focus on the work.
Join as a Vendor