Overhead recovery rate calculator
What percentage you need on every job to cover the cost of existing, and what happens to that number in a slow year.
Overhead is everything the business spends whether or not any particular job happens. Insurance, the yard, the truck, the phone, the person answering it. It has to be recovered across the jobs you actually sell.
The second half of this is the part most contractors have never run: your overhead rate quietly assumes a sales volume, and if you finish the year under it, every job you priced was correct and you are still short.
Costs that exist whether or not you sell a job: insurance, yard, office, software, non-billable salaries.
The volume your rate assumes. Job cost, not revenue.
What you really did. Set equal to expected to see the break-even case.
Your rate, and what a slow year does to it
At 30.0% you recover $90,000.00 of $120,000.00 in overhead, leaving $30,000.00 uncovered. Every job that year looked correctly priced. The rate needed to be 40.0% for the volume you actually did.
This is overhead recovery, not profit. Profit is what is left after job cost and overhead are both covered, and it belongs on its own line so you can tell which one is under pressure when a job comes back tight.
Recovering overhead as a percentage of job cost is the common approach and it under-recovers on labor-heavy work, since overhead consumption tracks time more closely than dollars. Recovering it per labor hour is the alternative.
This rate is not profit. Profit is what is left after both job cost and overhead, and keeping them separate is the only way to tell which one is under pressure when a job comes back tight.
Recalculate when insurance renews, when the crew changes, or when your volume assumption stops being true. A rate set three years ago is not describing this business.
The reasoning behind these numbers is in Overhead and profit, and where they belong in an estimate.