Enter your indirect costs and billable hours for a specific period (e.g., Monthly or Annually) to calculate your burden rate.
$
$
$
$
$
Sum of all hours billed to clients during this period.
Total Overhead Expenses:$0.00
Total Billable Hours:0.00
Overhead Rate Per Hour:$0.00 / hr
function calculateOverheadRate() {
var rent = parseFloat(document.getElementById('rentCosts').value) || 0;
var admin = parseFloat(document.getElementById('adminSalaries').value) || 0;
var software = parseFloat(document.getElementById('softwareCosts').value) || 0;
var marketing = parseFloat(document.getElementById('marketingCosts').value) || 0;
var other = parseFloat(document.getElementById('otherCosts').value) || 0;
var hours = parseFloat(document.getElementById('billableHours').value) || 0;
var totalOverhead = rent + admin + software + marketing + other;
// Display formatted total costs
document.getElementById('totalOverheadDisplay').innerHTML = '$' + totalOverhead.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('totalHoursDisplay').innerHTML = hours.toLocaleString();
var resultsArea = document.getElementById('resultsArea');
var rateDisplay = document.getElementById('rateResult');
resultsArea.style.display = 'block';
if (hours > 0) {
var ratePerHour = totalOverhead / hours;
rateDisplay.innerHTML = '$' + ratePerHour.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + ' / hr';
} else {
rateDisplay.innerHTML = 'N/A (Hours must be > 0)';
}
}
How to Calculate Overhead Rate Per Hour
Understanding your overhead rate per hour is critical for ensuring your pricing strategy actually covers your costs. While direct costs like raw materials and billable labor are easy to track, indirect costs—overhead—often eat into profits if not properly allocated.
What is Overhead Rate per Hour?
The overhead rate per hour represents the cost of running your business for every hour of billable work performed. It allocates indirect expenses (rent, insurance, administrative salaries) to the specific units of production or time that generate revenue. If you charge $100 per hour but have an overhead rate of $40 per hour and a direct labor cost of $50 per hour, your true profit is only $10.
The Formula
To calculate the overhead rate per hour, use the following formula:
Overhead Rate = Total Indirect Costs / Total Billable Hours
Where:
Total Indirect Costs: All business expenses that cannot be traced directly to a specific project (e.g., rent, utilities, software subscriptions, marketing, accounting fees, and non-billable support staff wages).
Total Billable Hours: The total number of hours your team spent working on revenue-generating tasks during the same period.
Step-by-Step Calculation Example
Let's assume a small digital agency wants to calculate their monthly overhead rate.
Identify Indirect Costs (Monthly):
Office Rent & Utilities: $2,500
Software & Tools: $500
Admin/Receptionist Salary: $3,000
Insurance & Legal: $1,000
Total Overhead: $7,000
Calculate Billable Hours:
The agency has 3 designers.
Each works 40 hours a week, but only 30 hours are billable (client work).
Apply the Formula: $7,000 / 360 hours = $19.44 per hour.
This means for every hour the agency bills a client, they must allocate $19.44 just to keep the lights on and the business running. This figure must be added to the direct labor cost and desired profit margin to determine the final billing rate.
Why This Metric Matters
Calculating this rate helps you avoid underpricing. If you only account for the hourly wage of your employees when quoting a project, you are ignoring the infrastructure that supports them. Regularly reviewing your overhead rate per hour can also highlight when administrative costs are becoming bloated relative to your production capacity.