Overhead rate is the percentage of business costs that are not directly tied to performing a specific job — including rent, insurance, vehicle payments, software subscriptions, office staff, and utilities. To price jobs profitably, businesses must add their overhead rate to direct costs (labor + materials). Many small service businesses fail because they price jobs based on direct costs alone, ignoring the overhead that slowly drains cash.
A field service company has $8,000/month in overhead (truck payments, insurance, software, phone). Their crews generate $32,000/month in direct labor revenue. Their overhead rate is $8,000 / $32,000 = 25%, meaning every dollar of labor needs to cover 25 cents of overhead.
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