What overhead is, and is not
Overhead is a cost that does not belong to any one job. It accrues by the month regardless of how many jobs you did. Direct costs belong to a job: the crew hours on it, the machine hours, the dump fee for that load. The test: if you did zero jobs this month, would you still pay it? If yes, it is overhead.
| Overhead line | Example, per year |
|---|---|
| Shop or yard rent | $9,600 |
| Office, phone, internet | $1,800 |
| Software and subscriptions | $1,200 |
| Accounting and legal | $2,400 |
| Licenses, permits, dues | $900 |
| Advertising, website, lead fees | $3,000 |
| Business insurance not rated on payroll | $4,200 |
| Vehicles not billed to jobs (the estimating truck) | $2,600 |
| Bank, card and platform fees | $1,100 |
| Owner time off the truck: quoting, admin, chasing money | $18,000 |
| Everything else | $2,000 |
| Total annual overhead | $46,800 |
The line everybody leaves out
If you spend fifteen hours a week estimating, scheduling, ordering parts and sending invoices, and you do not pay yourself for those hours, your business has $18,000 a year of free labor in it. The jobs never carry it, your prices are too low by that amount, and the day you hire an office manager the business suddenly "cannot afford" what it was always costing. Put your own admin time in overhead at a real hourly rate.
Spread it over billable hours, not paid hours
Billable hours means hours a customer pays for, not hours the crew is on the clock. If you divide by paid hours (2,000), the rate looks like $23.40 and every job is under-allocated by a quarter. The unbillable hours have to be carried by the billable ones.
Monthly version for small crews
If you think in months: monthly overhead ÷ billable crew hours per month. $6,500 ÷ 320 = $20.31 per crew hour. Same idea, shorter horizon. Recalculate it every quarter; overhead creeps and billable hours swing with the season.
Where it goes on a quote
Multiply the overhead rate by the crew hours on the job and add it to direct cost before applying margin. A 22.5-crew-hour tree job carries $457 of overhead at $20.31. Apply margin to the total, not to direct cost alone: cost ÷ (1 − margin).
Signs your overhead is not in your prices
- Busy months feel profitable and slow months feel like a crisis. Overhead is being paid out of the busy months' margin instead of out of every job.
- Your quoted "30% margin" turns into 8% to 12% on the tax return.
- You cannot take a week off without the business losing money, because your unpaid admin hours were holding it up.