Manufacturing Overhead Calculator
Estimate the overhead cost to apply to a project.
For any woodworking or manufacturing business, the cost of a project is more than just materials and direct labor. Overhead costs—like rent, electricity, insurance, and tool maintenance—are significant expenses that must be accounted for to ensure profitability. This calculator helps you determine your shop's hourly overhead rate.
By totaling all your indirect monthly costs and dividing by your total billable labor hours, you can find the overhead cost for every hour of work you do. This rate should be added to your direct labor rate to create a true 'shop rate' that covers all your expenses and ensures your business remains healthy and profitable.
Add this to your direct labor rate for project pricing.
The calculation is a simple but powerful ratio.
- Sum All Indirect Costs: Add up every business expense for the month that is NOT direct materials or direct labor for a specific job. This includes rent, utilities, insurance, marketing, administrative salaries, tool depreciation, etc.
- Sum Billable Labor Hours: Add up the total number of hours in the month that your production staff spent working directly on paying jobs. Do not include administrative or non-billable time.
- Calculate the Rate: Divide the total overhead costs by the total billable hours.
Overhead Rate = Total Monthly Costs / Total Monthly Billable Hours
- Overhead: Indirect business costs that are not directly attributable to a specific project but are necessary to operate the business.
- Direct Costs: Costs that can be directly assigned to a specific project, such as the lumber and hardware used and the labor hours spent building it.
- Billable Hours: The hours of labor that are directly charged to a client for work on their project.
- Shop Rate: The total hourly rate charged to a client, which should include direct labor wages, overhead, and a profit margin.
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Always double-check your measurements before cutting.
Account for the kerf (the width of the saw blade) in your calculations.
Consider wood movement (expansion and contraction) in your final dimensions.
Buy 10-15% extra material to account for mistakes and waste.