Business Templates
Overhead cost calculator

What are overhead costs?

Overhead refers to the ongoing business expenses not directly attributed to creating a product or service. It is important for budgeting purposes but also for determining how much a company must charge for its products or services to make a profit. In short, overhead is any expense incurred to support the business while not being directly related to a specific product or service

Overhead costs formula

The formula for calculating your company’s total overhead cost is:

Overhead Cost = Indirect Materials + Indirect Labor + Indirect Expenses

How to calculate overhead cost

To find overhead cost, you need to identify and gather the relevant expenses that are not directly tied to a specific product or service. Here’s a step-by-step guide on how to calculate overhead costs:

Step 1: Identify overhead expenses. These may include rent, utilities, insurance, office supplies, salaries of administrative staff, maintenance costs, marketing expenses, equipment depreciation, and other general operational costs.

Step 2: Determine the time period. Decide on the time period for which you want to calculate overhead costs, such as a month, quarter, or year.

Step 3: Sum up total overhead expenses. Add up all the overhead expenses incurred during the chosen time period.

Step 4: Calculate overhead rate. Divide the total overhead expenses by a relevant cost driver, such as direct labor cost, direct labor hours, or machine hours. For example, if your total overhead expenses are $150,000 and your total direct labor cost is $300,000, your overhead rate would be 50% ($150,000 divided by $300,000).

Step 5: Allocate overhead costs. Once you have the overhead rate, you can allocate the overhead costs to specific products or services. Multiply the overhead rate by the corresponding cost driver for each product or service. For example, if a product requires $150,000 in direct labor cost, the allocated overhead cost would be $75,000 ($150,000 multiplied by 50%).

Download our overhead cost calculator for step-by-step instructions on how to find your overhead costs.

It’s important to note that the specific method of calculating overhead costs may vary depending on your business and industry. Consulting with an accountant or financial professional can provide further guidance tailored to your specific situation.

Benefits of using an overhead cost calculator

By using an overhead cost calculator, businesses can:

  1. Budget and plan: An overhead cost calculator allows businesses to accurately estimate their overall expenses, allocate resources effectively, and set appropriate pricing strategies.
  2. Cost control: It helps identify areas of high expenses and enables businesses to analyze and control those costs.
  3. Pricing decisions: By utilizing an overhead cost calculator to accurately determine overhead costs, businesses can ensure that their products or services are priced appropriately to cover all expenses and generate desired profit margins.
  4. Decision-making: An overhead cost calculator provides valuable insights into the impact on overall expenses and profitability when it comes to strategic decisions, such as introducing new products, expanding operations, or considering cost-saving measures.

An overhead cost calculator is a valuable tool that enables businesses to analyze and manage their indirect expenses effectively, leading to better financial planning, cost control, and pricing decisions.


What percentage of business should be overhead?

A good percentage of overhead for small businesses will vary and be dependent on the industry, as well as, the type of business. However, small businesses typically consider having an overhead percentage of less than 35% as good. The lower the percentage, the better.

What information does an overhead cost calculator need?

You will typically the following information in every overhead cost calculator:

  • Overhead expenses
  • Estimated cost of each overhead expense
  • Time period

Download our overhead cost calculator for a list of line items to consider as business overhead.

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