Overhead per Billable Hour: The Number Under Every Price

“How do I make sure my prices cover the truck, the insurance and the phone?” Every job carries two kinds of cost. Job costs are used up by the job itself: materials, crew hours, the sub, the dump fee, the permit. Overhead keeps the business open whether anyone works today or not: the truck payment, the liability policy, the phone, the software, the accountant, and the evenings you spend writing estimates. Job costs show up on the job. Overhead shows up nowhere unless you put it there. The simplest way to put it there is one number added to every labor hour you sell: overhead per billable hour.

Step 1: Add up a year of overhead

Start with last year’s books. If you file a Schedule C, its expense lines make a good checklist, because most of them are overhead for a trade business:

• Line 8, advertising; line 9, car and truck expenses; line 13, depreciation and section 179.
• Line 15, insurance (other than health); lines 16a and 16b, interest; line 17, legal and professional services, which the instructions say covers your accountant’s and attorney’s fees.
• Line 18, office expense (office supplies and postage); line 20a, rented vehicles, machinery and equipment; line 20b, other business property such as a shop or yard.
• Line 21, repairs and maintenance; line 22, supplies; line 23, taxes and licenses, which includes license and regulatory fees for your trade; line 25, utilities.
• Line 26, wages, but only for people whose hours you do not bill, like office help; and line 27b, other expenses, where the instructions put software tools and subscription services you pay to manage the business.

Leave out what belongs to jobs: Part III’s cost of labor, materials and supplies and other costs (lines 37 to 39), and line 11’s contract labor when it was a sub on a particular job. Those you price job by job, as in Job Costing.

Three changes the tax return will not make for you

1. Your own office time. Part III, line 37, says outright: “Do not include any amounts paid to yourself.” A sole proprietor’s pay is not an expense on Schedule C, so the hours you spend estimating, ordering and doing the books never appear. Put them in at a wage. How to set that wage is in The Owner’s Pay.
2. Replacement, not tax depreciation. The Schedule C instructions let you elect section 179 to expense part or all of the cost of certain property in the year you buy it. That is a tax choice. For pricing, spread the truck over the years you will keep it, or the year you buy it looks terrible and the next five look falsely cheap.
3. Next year’s numbers. Add the insurance renewal you already know about, the new software, the second truck. Costs move during a year, too: the IRS raised its own business mileage rate from 72.5 cents for January to June 2026 to 76 cents from July 1.

Step 2: Count the hours you really bill

The bottom of the fraction is billable hours: the hours of everyone whose time you sell, owner included when you are on the tools, counted the way they end up on invoices. It is not paid hours, and it is never 2,080 per person. Holidays, drive time, supply runs, rain days and callbacks all come out. The two-week time-card method for finding the real figure is in Your Real Hourly Cost; in that article’s example, a helper paid for 2,080 hours bills 1,618.5. Use a full year, slow months included.

Step 3: Divide, then add it to every labor hour

Say a painter works with one helper. The numbers below are made up for the example; put in your own.

Now build the helper’s rate from the bottom up. His loaded cost, wages plus payroll taxes and workers’ comp per billable hour, was $36.37 in the labor burden example. Add $19.68 of overhead and every hour he works costs the business $56.05 before a dollar of profit. Want 10% profit on top? Divide, do not multiply (the reason is in Markup vs. Margin): $56.05 ÷ 0.90 = $62.28 an hour.

Compare that with a flat rule. The labor burden article stopped at a 35% margin to cover overhead and profit together, which gave $56. With this painter’s real overhead, $62.28 is a margin of about 42% over the $36.37 loaded cost. At 35%, $55.95 an hour would not even cover his $56.05 break-even. That is what this number is for: it tells you whether your rule of thumb is enough.

Why the busy season has to carry the slow one

Overhead arrives every month. Billable hours do not. Even the national count of specialty trade contractor jobs, which smooths out every local winter, rose from about 5,042,000 in January 2025 to about 5,350,000 in July 2025, not seasonally adjusted (BLS). In one shop the swing in hours can be much wider.

Say the painter bills 320 hours a month from April through October and 116 a month from November through March. That is the same 2,820 hours. Overhead runs $4,625 a month either way. In a busy month it works out to $14.45 per billable hour; in a slow month, $39.87. Price all year from the busy month’s $14.45 and the year recovers about $40,760 of $55,500, roughly $14,700 short. Price all year at $19.68 and each busy month brings in about $1,670 more overhead than it costs, which is what pays the slow months’ shortfall. That surplus in July is not extra profit. It is January’s rent, and it belongs in the bank until then (see seasonal cash flow and the 13-week forecast).

Per hour, or a percent of sales?

Another common method recovers overhead as a share of sales. It works when your jobs have a similar mix of labor and materials. When the mix varies, the two methods disagree. Say the painter’s sales are $250,000 a year, so overhead is 22.2% of sales, and he prices two $6,000 jobs:

Job B ties up the truck, the crew and the schedule three times as long as job A. The percent method charges both the same, so job A comes out overpriced against competitors and job B underpriced by about $440 of overhead. Where time is what you sell, price overhead by the hour, and check it once a year against overhead as a share of sales.

Mistakes that keep the number too low

• Dividing by paid hours. A bigger bottom number makes a smaller, wrong answer.
• Leaving yourself out. Your office hours are the largest line in the example above.
• Using the busy month’s number. Divide a year by a year.
• Forgetting the once-a-year bills. Insurance premiums, license renewals and the accountant land in one month and belong to all twelve.
• Doing it once. Redo it every year, and when you add a truck, a hire or a shop. A new hire adds billable hours and lowers overhead per hour only if the schedule keeps that person billing.

One afternoon with last year’s Schedule C and a stack of time cards gives you the number that sits under every price you quote. If you show price ranges on your website with NapkinPrice™, build them from this rate, so the range a homeowner sees at midnight already carries the truck, the insurance and the phone.