This calculator vs. guessing your burden and overhead

What each approach is

Guessing from memory means typing "20%" for payroll burden and "10%" for overhead into a bid calculator because those are the round numbers that circulate among contractors, without checking either against an actual year of payroll and cost records. It costs nothing and takes no time, and it is the default nearly everyone starts from — not because it is wrong on purpose, but because working out the real numbers looks like an accounting exercise most people would rather not do between bids.

This calculator takes the records a shop already keeps — wages, payroll taxes, workers' comp, liability insurance, benefits, vehicles and tools, paid and billable hours, and the fixed cost of running the business for a year — and computes the same two numbers instead of recalling them. It runs once, in the browser, on nothing that leaves the device, and it produces a break-even hourly rate and the rate a target margin actually requires, built from that shop's own year rather than a number that circulates.

The gap between the two is not rounding error. On this calculator's own shipped example — a $28 wage, three-person crew, 75% of paid hours actually billed, and a 12% target margin — the 20%/10% guess prices an hour at $42.00. The same year, run through this calculator, needs $74.07: a 92% payroll burden once the paid hours that are never billed are counted, and a 21.3% overhead rate once it is measured against direct cost the way bidding arithmetic actually uses it rather than against revenue the way a P&L states it. That is $32.07 an hour short, or roughly $150,000 a year across a three-person crew — not a number that shows up as a line on a statement, but as jobs that were priced to lose money from the day they were bid.

The guess is not a bad habit so much as a shortcut with a real cost that stays invisible until a slow quarter or a lost bid makes it obvious. This calculator does not remove the shortcut's convenience — it is still one page, still free, still nothing to sign into — it just replaces the two recalled numbers with the two computed ones.

This tool needs no account and no sign-in: it is a static page, the arithmetic runs in your browser, and once it has loaded it keeps working with the connection off.

Common questions

Why not just use 20% burden and 10% overhead like everyone says?

Because those two figures answer different questions than the ones a bid calculator needs. The textbook 20% payroll burden is employer taxes, workers' comp, and liability as a percentage of wages, and it assumes every paid hour is billed. A field employee is paid for roughly 2,080 hours a year; holidays and vacation come off that, and of the hours actually worked, drive time, loading, estimating, shop time, and warranty callbacks are on nobody's invoice. Once burden is expressed per billable hour instead of per paid hour, the same payroll can come out to 60%, 90%, or more. The textbook 10% overhead is usually a share of revenue, borrowed from a profit-and-loss statement, while bidding arithmetic applies overhead to a job's direct cost -- a smaller number, so the same dollars of rent, software, and owner pay come out to a higher percentage against it. Both guesses are round numbers pulled from habit rather than computed from either business's own records, and on the shipped example they under-price an hour by $32.07.

How much difference does it actually make?

On this calculator's own shipped example -- a $28 wage, three-person crew, 75% billable share, and a 12% target margin -- the 20%/10% guess prices the hour at $42.00. The same year's own numbers, run through this calculator, need $74.07: a 92% payroll burden once unbillable paid hours are counted, and a 21.3% overhead rate once it is measured against direct cost rather than revenue. That is $32.07 an hour short, or roughly $150,000 a year across a three-person crew before any of it shows up as a missed number on a P&L -- it shows up as work that was always going to lose money, priced as though it would not.

Where would I get the real numbers instead of guessing?

From records most shops already keep: last year's payroll (wages, employer payroll taxes, workers' comp premium, liability insurance, benefits), what was paid for vehicles, fuel, phones, and tools, and the fixed cost of running the business for a year -- owner and office pay, rent and utilities, software, marketing, and other insurance and licenses -- plus what was spent on materials and subcontractors. This calculator turns those into the payroll burden per billable hour and the overhead rate on direct cost automatically; nothing has to be looked up or estimated once the underlying figures are in hand, and nothing is uploaded anywhere to get the answer.

What if I don't know my exact billable-hours percentage?

A rough estimate is still far better than skipping the input, because it is the single figure this arithmetic is most sensitive to: on the shipped example, moving the billable share by ten points changes the required rate by more than the entire target margin does. A shop with no time-tracking can start from paid hours minus holidays, vacation, and a rough guess at drive time and shop time, see the rate that guess implies, and tighten the estimate later -- which is still a computed number checked against a business's own year, not a round figure recalled from habit.

Is this the same as reading a P&L or asking a bookkeeper?

No, and it does not replace either. A profit-and-loss statement reports what already happened, expressed as percentages of revenue; a bookkeeper or accountant can confirm the underlying payroll and cost figures are correct. This calculator does the one piece neither of those hands over on its own: converting a year of payroll and overhead into a burden rate per billable hour and an overhead rate on direct cost, in the form a bid calculator actually consumes. It is arithmetic on numbers a contractor supplies, not an accounting or tax determination.

Open the Shop Rate Calculator to work out your own rate.