Pricing · method · worked example

How to allocate overhead to billable hours

Add up a year of overheads and divide by the hours that reached an invoice, not the hours you paid for. That is your overhead per billable hour, and every hour you price has to carry it on top of its labour cost. In the fictional example below, £92,800 of overheads over 5,050 billable hours is £18.38 an hour. Dividing by the 7,800 paid hours instead gives £11.90, and leaves £32,718 of overheads uncovered.

Before you divide

What goes in each number

OverheadWhat you would still pay in a week with no jobs booked: vans, premises, insurance, office staff, software, marketing, tools, depreciation, accountancy.

Not overheadMaterials and subcontractors bought for a job, and the wages of the people doing the work. Those are charged to the job directly.

The ownerHours on the tools are field labour. Hours quoting, scheduling and doing the books are overhead. Split the wage by a typical week.

Billable hoursHours that appear on an invoice or sit inside a fixed price. Travel between jobs, quoting, collecting materials and unpaid return visits are paid hours, not billable ones.

Fictional example · Harbour Plumbing & Heating · 2025

The division, in four steps

Harbour Plumbing & Heating is the invented firm in our example report: owner on the tools, three engineers and one office coordinator. Figures are GBP excluding VAT.

Overhead	Year	Per billable hour
Office payroll & employer costs	£31,000	£6.14
Vehicles, fuel & travel	£25,800	£5.11
Premises, insurance & general running costs	£18,000	£3.56
Software & administration	£5,500	£1.09
Marketing	£6,000	£1.19
Tools, equipment & depreciation	£6,500	£1.29
Total	£92,800	£18.38

Step 1

Total overheads for the year£92,800

Twelve months from the accounts, so seasonal bills such as insurance are not missed.

Step 2

Billable hours for the year5,050 hrs

7,800 paid field hours, of which 5,050 were recorded on jobs (65%)

Take this from job records or timesheets. Estimates from memory run high.

Step 3

Overhead per billable hour£18.38/hr

£92,800 ÷ 5,050

Step 4

Add the labour cost of a billable hour£52.83/hr

£174,000 field payroll ÷ 5,050 = £34.46; + £18.38

What an average billable hour costs before materials and before any profit. An hour priced below this loses money.

The common mistake

Dividing by paid hours

Divide the same £92,800 by the 7,800 hours the field team was paid for and the rate is £11.90. It looks reasonable, but only 5,050 hours are ever charged to a customer. At £11.90 those hours bring in £60,082 towards overheads, and the other £32,718 comes out of profit.

The example counts return-visit hours as job hours. If the 166 hours spent on return visits were not charged to anyone, the true divisor is 4,884 and the rate is £19.00.

How busy you are

The rate moves with billable hours

Billable hours in the year	Share of paid hours	Overhead per billable hour
4,500	58%	£20.62
5,050 the example	65%	£18.38
5,500	71%	£16.87
6,000	77%	£15.47

Overheads held at the example's total. Recalculate each year, and again after a van, a hire or a rent change.

When one rate is not enough

The same overheads, charged three ways

One hourly rate is right for pricing an average hour. It is less right for judging job types against each other, because not every overhead follows hours. Office time follows the number of jobs and vans follow travel.

Job type	Hours	Per billable hour	As a share of revenue	Each cost by what drives it
Boiler replacements	1,500	£27,564	£31,552	£14,819
Repairs & call-outs	1,750	£32,158	£25,984	£43,563
Bathroom installations	1,150	£21,133	£23,200	£10,790
Servicing	650	£11,945	£12,064	£23,628

The total is £92,800 in every column. Per billable hour is £18.38 × hours. As a share of revenue is 17.5% of each type's sales. The last column is the example report's method: office and software per job, vans by travel hours, premises and tools by job hours, marketing by revenue.

The hourly rate charges servicing £11,684 less than that work actually costs, because many short jobs each need a booking, an invoice and a drive. A percentage of revenue charges boiler replacements £16,733 too much, because those invoices are mostly materials. How this reorders the profit ranking is worked through in profit by job type.

Using the rate

Where the number goes next

Hourly pricing

Labour cost plus overhead per billable hour is the floor. The floor rate guide builds the labour side from a wage, with employment costs and holiday.

Fixed prices

Multiply the rate by the hours the job is expected to take, travel included. See flat rate vs time and materials for who carries the overrun.

Other trades

The method is the same wherever labour is sold by the hour. For commercial cleaning the billable hours are the contracted hours on site.

The example firm and its costs are invented. They show the method; they are not a benchmark for UK or US trade businesses.

Or have it worked out from your own records.

£400 / $500 · up to 5 years of your jobs · 5 working days · refunded in full if nothing material is found

Your overheads, your recorded hours, and every job type held against the result, checked by a person.

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