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How to Calculate Overhead Costs in 3 Easy Steps

1. Look at What You Spent Last Year

   The easiest way to get started calculating your overhead costs is to look at a list of expenditures from the previous year. Here’s a basic list of yearly expenses:

   • Electricity
   • Mortgage
   • Natural gas
   • Insurance
   • Supplies
   • Wages

2. Determine Your Monthly Overhead Costs

   The yearly numbers you see in step one are just totals. Reduce those numbers to a monthly component to better manage your finances.

3. Add Up the Individual Expenses

   Now that you know what you spend every month on necessary expenses, add up those numbers to calculate your monthly overhead costs.

How Do You Calculate Overhead Rate?

Overhead Rate = Overhead Costs / Income From Sales. For example, if you brought in $28,000 last month and spent $1,800 in overhead costs:

Overhead Rate = $1,800 / $28,000 = 0.06 or 6%

For every dollar made, $0.06 is spent on overhead costs.

Improve Your Business with Overhead Cost Data

Utilize overhead cost data to calculate other key metrics for your business like Break-Even Analysis, Billable Hour Price, and Per-Unit Price.

Break-Even Analysis

Break-Even Point = Overhead Costs / (Sales Price – Variable Costs)

Billable Hour Price

Billable Hour Price = (Monthly Overhead Costs / Total Monthly Billable Hours) + Hourly Rate

Per-Unit Price

Per-Unit Price = (Monthly Overhead Costs / Total Units Sold) + Current Price Per Unit

Overhead Absorption Rate

Calculate direct materials percentage, direct labor percentage and use those to figure out your prime cost percentage.

Overhead Rate Per Employee

Another useful calculation that includes total labor cost for a month and total overhead cost.

Get Control of Your Payroll to Reduce Overhead Costs

Utilize Sling’s features like the labor costs feature, which helps optimize payroll as you schedule, preventing spending from getting out of control.