Determine Daily Overhead Rate

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How to charge for Landscaping, Retaining walls, Patios and Outdoor Construction

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What happens here

To accurately factor overhead into each job, first determine your total annual overhead. This involves taking last year's total business expenses and subtracting all material costs and all direct labor costs. The remaining figure is your total annual overhead. Next, identify the number of days your crew *actually worked on job sites* last year. Do not include office days or days not actively engaged in billable project work. Divide your total annual overhead by this number of on-site working days to calculate your daily overhead rate. This daily rate represents the amount of overhead you need to recover each day you work on a project. Overhead includes expenses like rent, insurance, office supplies, fuel, repair, and even work clothes, as well as equipment like a tractor, skid loader, trailer, and attachments.

Goal: Establish a per-day cost for business operational expenses.

Tools and materials

Attachments — Example of equipment contributing to overhead
Calculator — Performing calculations for overhead
Skid loader Bobcat — Example of equipment contributing to overhead
Tractor — Example of equipment contributing to overhead
Trailer — Example of equipment contributing to overhead
Fuel N/A — Example of an overhead cost
Insurance N/A — Example of an overhead cost
Office supplies N/A — Example of an overhead cost
Previous year's financial records N/A — To obtain total expenses, material costs, and labor costs
Rent N/A — Example of an overhead cost
Repair costs N/A — Example of an overhead cost
Work clothes N/A — Example of an overhead cost

What they say

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Nope. Now, you're going to hear me talk about a number of concepts today, and I want to make sure that we're all on the exact same page. The concepts are material, overhead, labor, and microchanges. Now, a lot of guys concentrate on controlling their material cost because it's easy to do. It is literally just how many blocks, bricks, stones, what do we use on a job? But see, that's where they go wrong. The second thing that they concentrate on is labor. and they forget about the third thing, which is overhead. And overhead is silent but deadly. Overhead is what kills a lot of guys because they don't even begin to understand how to control overhead. And to help you guys out, we're going to do a very brief overview on how to understand overhead right now. All right, guys. Overhead is kind of like this tractor that I'm sitting on. You've got to allocate for the expense of everything inside your company, whether it's a tractor, a skid loader, a trailer, or even just your attachments. Overhead can also be reflected in paper and the printer. All of these things cost you guys money, and it's hard to allocate those on a job site. So, here's how you do it. The very first thing I want you to do is take last year's total expenses, subtract out all of your material costs. That's things like these bricks, these pavers, remove all of that from your expenses from last year. Then subtract out all of the labor. Remove that from last year's expenses. Everything that you have left over, we're going to consider overhead. And then what we're going to do is divide by how many days you actually work. Not how many days are in the year or how many days that you work, but how many days you work on a job site. So if you work 250 days on jobs, now maybe you guys work like 270 or 80 days, but that's office work. It doesn't count. It's got to be on the job because we're going to allocate the overhead expense to the jobs. That's the safest way to do this. So, if your overhead expense, let's just say your overhead was $200,000 for the year and you worked you worked 200 days out of the year, that means you've got to earn $1,000 per day just to cover your overhead. And this is where a lot of guys go wrong. They don't allocate for that. So, today you're going to hear us talking about time as a reflection of labor and overhead. And you can see where controlling how much time you spend on a job isn't about controlling the labor as much as it is understanding the overhead. Now, this is very…

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