Understanding Overhead Costs
Overhead includes all business expenses not directly tied to specific projects. Accurate tracking is essential for profitable pricing — most woodworkers underestimate overhead by 30-50%.
Last updated: 2026-02-27
Overhead Cost Calculator
Calculate overhead costs, determine overhead rate, and allocate fixed expenses. Includes rent, utilities, insurance, equipment, and labor costs for business optimization.
Fixed Costs Variable Expenses Overhead Rates Cost Analysis
Business Cost Parameters
Business Type
Fixed Costs (Monthly)
Variable Costs (Monthly)
Business Parameters
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Cost Analysis
Add your business costs and parameters to calculate comprehensive overhead analysis and cost optimization strategies for your woodworking business.
Accurate overhead calculation is essential for sustainability. Include all expenses and review costs regularly.
Calculations are planning tools. Actual costs vary by location, business model, and operational decisions. Consult financial advisor for guidance.
How to Use This Calculator
- 1 Select Business Type Choose Home Shop, Small Shop, Commercial, Contractor, Production, or Custom.
- 2 Add Fixed Costs Enter monthly fixed costs: rent, insurance, equipment payments, subscriptions.
- 3 Add Variable Costs Enter monthly variable costs: consumables, utilities, maintenance, marketing.
- 4 Business Parameters Set working hours, billable percentage, target profit margin, and contingency buffer.
Pro Tip: Track all expenses for 3 months before using this calculator to get accurate data. Include hidden costs like tool replacement, vehicle expenses, and professional development.
Overhead Rate = Total Monthly Overhead / Billable Hours per Month | Business Type | Monthly Overhead | Overhead Rate/Hour | % of Revenue |
|---|---|---|---|
| Home Shop | $300-800 | $3-7/hr | 15-25% |
| Small Shop (rented) | $1,500-3,500 | $12-25/hr | 25-40% |
| Commercial Shop | $3,000-8,000 | $20-45/hr | 30-45% |
| Contractor/Mobile | $800-2,000 | $7-15/hr | 20-30% |
| Production Facility | $5,000-15,000 | $25-60/hr | 35-50% |
Ranges depend on location, size, equipment, and insurance levels. Track actual costs for your specific situation.
Overhead Reduction Strategies
- Negotiate Rates: Review insurance, utilities, and service contracts annually — savings of 10-20% are common
- Increase Billable Hours: Improve efficiency to increase billable ratio from 60-70% to 75-85%
- Share Resources: Co-op shop space, shared equipment, or group purchasing for consumables
- Automate Admin: Use software for invoicing, scheduling, and bookkeeping to reduce non-billable time
- Energy Efficiency: LED lighting, efficient dust collection, and climate control can cut utility costs 15-30%
Glossary of Terms
Business expenses that remain constant regardless of production volume. Includes rent, insurance, equipment payments, and subscriptions. Must be covered even during slow periods.
Expenses that change with business activity level. Includes consumables, utilities (usage portion), maintenance, and marketing. Scale with production volume.
Total overhead cost divided by billable hours. Represents the minimum amount each billable hour must cover for business expenses before profit.
Portion of working hours directly charged to clients. Non-billable time includes admin, marketing, maintenance, and business development. Typical: 60-85%.
Percentage added to overhead for unexpected costs, market changes, and business disruptions. Recommended: 5-15%. Higher for new businesses or volatile markets.
Frequently Asked Questions
What costs should be included in overhead?
Include all business expenses not directly tied to specific projects: shop rent/mortgage, utilities, insurance, equipment payments, tool maintenance, administrative costs, marketing, and professional services. Do not include direct materials or direct labor.
How do I calculate overhead rate percentage?
Overhead rate = (Total Monthly Overhead / Monthly Direct Labor Cost) x 100. Alternatively, overhead per hour = Total Monthly Overhead / Billable Hours per Month. Typical rates range from 50-150% depending on business type.
What is the difference between fixed and variable costs?
Fixed costs remain constant regardless of production volume (rent, insurance, equipment payments). Variable costs change with business activity (consumables, utilities, maintenance). Understanding this helps with pricing and capacity planning.
How often should I review overhead costs?
Review monthly for accuracy, quarterly for trends, and annually for strategic planning. Update immediately when major costs change (rent increases, new equipment, insurance changes). Track actual vs. budgeted overhead monthly.
What percentage of billable hours is realistic?
Typical billable percentages: Solo craftsperson 60-75%, Small shop 70-80%, Production shop 80-85%. Account for setup, cleanup, maintenance, admin, marketing, and business development in non-billable time.
How do I reduce overhead costs?
Strategies include: negotiate better rates (insurance, utilities), improve efficiency to increase billable hours, share space/equipment, automate administrative tasks, review subscriptions/services, and optimize energy usage. Focus on cost per billable hour reduction.