Overhead: the cost of being in business

Overhead is every cost that doesn't care whether you worked today. Rent is due either way. The insurance renews either way. The truck loses value sitting in the driveway. None of it shows up on any job's receipt — and all of it has to come out of the jobs, because there is nowhere else.

Add up the fixed month

Take one honest pass through a small shop's month:

That third line deserves a pause. Depreciation is equipment wearing out, converted to a monthly number: a $24,000 machine that lasts five years costs $400 a month even though no bill arrives. Skip it and your prices quietly assume tools are free — until replacement day, when five years of uncharged cost lands at once.

Divide by the hours that earn

A pile of $2,500 is hard to price with. Divide it by the hours you can actually bill in a month — about 100 for a solo operation, as the next lesson shows — and it becomes wieldy:

$\text{overhead rate} = \frac{\$2{,}500 \text{ / month}}{100 \text{ billable h / month}} = \$25 \text{ per billable hour}$

Every hour carries it, or you do

That $25/h is not optional and not profit. A 6-hour service call carries $150 of overhead; a 40-hour week of installs carries $1,000. When a competitor's quote seems impossibly low, this is usually the number they forgot — and the discount they're unknowingly giving comes straight out of their own pocket.

Two warnings before you reuse the math:

• Use billable hours as the divisor, not working hours. Divide by 173 (a full month) and the rate looks flatteringly small — then every unbilled hour un-pays it.
• Recompute when the shop changes. New lease, second truck, an apprentice: the fixed month moved, so the rate moved.

Next: where that "100 billable hours" figure comes from — and how to build your hourly rate from the income you actually want.