Contractor field notes
Convert annual contractor overhead into a recovery allowance
Office expenses, insurance, software, vehicles, and other indirect costs still need to be paid when the crew is on a job. This tool spreads an annual overhead budget over months, working days, or billable hours, and compares it with expected annual revenue. Choose the recovery basis that matches how you price your work.
Overhead recovery formulas
Monthly overhead = annual overhead ÷ 12. Daily overhead = annual overhead ÷ working days. Hourly overhead = annual overhead ÷ billable hours. Overhead share of revenue = annual overhead ÷ annual revenue × 100.
Worked example
With $120,000 annual overhead, 240 working days, 4,000 billable hours, and $1,000,000 annual revenue: monthly overhead is $10,000; daily recovery is $500; hourly recovery is $30; and overhead is 12% of revenue. These are alternative views of the same budget, not charges to add together.
Common estimating pitfalls
- Use company-wide billable hours, not all paid hours.
- Do not recover the same overhead twice through both a rate and a separate allowance.
Frequently asked questions
What belongs in contractor overhead?
Include indirect company expenses that are not already charged to individual jobs. Use consistent records and keep direct labor and materials out of overhead when they are accounted for elsewhere.
Should I recover overhead hourly or as a percentage?
Hourly recovery can suit labor-driven work; a percentage can suit a revenue-based budget. Compare both against your work mix rather than assuming one works for every project.
Does an overhead allowance include profit?
No. Overhead recovery covers indirect expenses. Profit is a separate pricing goal after costs have been covered.