Overhead Rate Calculator
Turn indirect overhead costs into an allocation rate against direct labor or sales, so you can load overhead into every job you price.
How it works
Overhead rate % = total overhead ÷ allocation base × 100
Overhead is the indirect cost of being in business — rent, admin salaries, insurance, software — that no single job pays for directly. Dividing it by an allocation base (usually direct labor cost or sales) gives a rate you can add to every quote so overhead is recovered proportionally. Pricing only direct costs is a common mistake that quietly leaves overhead uncovered.
Worked example
A shop has $120,000 of annual overhead and $300,000 of direct labor cost. The overhead rate is 120,000 ÷ 300,000 = 40%, meaning every $1 of direct labor should carry $0.40 of overhead — so a job with $1,000 of labor should absorb $400 of overhead.
Frequently asked questions
What counts as overhead?
Indirect costs that keep the business running but are not tied to one job: rent, utilities, admin and management salaries, insurance, software subscriptions and depreciation. Direct materials and the labor billed to a specific job are not overhead.
Should I allocate on labor or sales?
Labor-based allocation suits service and manufacturing work where labor drives cost; sales-based allocation is simpler for resale businesses. Pick the base that most closely tracks what actually causes your overhead to be incurred.
How do I use the overhead rate in a quote?
Multiply the job’s direct-labor cost (or sales) by the rate and add it to your direct costs before applying profit markup. That ensures each job pays its fair share of keeping the lights on.
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Educational estimate, not financial advice.