How to Calculate Your Landscape Company's Real Overhead

If you do not know your real overhead number, you are pricing blind. Here is how to calculate it — and how to make sure every bid covers it.

Most landscape contractors know their direct job costs well enough. Materials, hourly wages, subcontractors — those numbers live in bids and invoices. But overhead is the category that quietly kills margin. It is everything your company spends to exist before a single crew member shows up on a job site.

When overhead is not calculated and built into every bid, you are effectively running a charity. You are doing the work, paying the costs, and delivering the profits to clients in the form of underpriced labor. The fix is not complicated — but it requires you to sit down and actually add everything up.

What Counts as Overhead (And What Does Not)

Overhead is every business cost that is NOT directly tied to a specific job. It is the cost of running the operation — not the cost of producing a deliverable. This distinction matters because direct job costs get priced per project. Overhead gets spread across all revenue.

Overhead includes: rent or storage yard costs, insurance (general liability, commercial auto, workers comp — even if some is job-allocatable), owner salary and any owner draw you take, office staff wages, software and subscriptions, vehicle payments and fleet maintenance not billed per job, fuel that is not job-logged, marketing and advertising, accounting fees, legal fees, loan interest, and equipment depreciation on assets not rented job-by-job.

What is NOT overhead: materials purchased for a specific job, subcontractors hired for a specific job, direct labor hours worked on a job site, equipment rental for a specific project. Those are cost of goods sold (COGS). They get captured in job-level profitability.

A lot of contractors accidentally put owner salary into overhead but then forget it when they are pricing. Or they include vehicle insurance in overhead and also charge a per-mile equipment rate on jobs. Either way leads to double-counting or missed costs. Get the categories clean first.

Step 1 — Pull 12 Months of Actual Expenses

Do not estimate overhead from memory. Pull your bank statements or QuickBooks P&L for the last 12 months. Export every expense line. Then sort each expense into three buckets: direct job cost, overhead, or owner draw/distributions.

For a landscape company doing $900,000 in annual revenue, a real overhead breakdown might look like this:

• Rent / storage yard: $18,000/year
• General liability insurance: $14,400/year
• Commercial auto insurance (not job-allocated): $9,600/year
• Owner salary (market rate, separate from profit): $72,000/year
• Office manager / estimating support: $42,000/year
• Software, subscriptions, tools: $6,000/year
• Marketing and advertising: $12,000/year
• Accounting and bookkeeping: $8,400/year
• Vehicle loan payments (non-job-specific): $24,000/year
• Equipment depreciation: $11,000/year
• Miscellaneous (bank fees, legal, etc.): $4,800/year

That totals $222,200 per year in overhead. On $900,000 in revenue, that is a 24.7% overhead rate. Every bid you send needs to cover at least 24.7 cents of overhead on every dollar of revenue — before you see a single cent of profit.

Step 2 — Convert Annual Overhead to an Hourly Rate or Percentage

Once you have your annual overhead total, you need to translate it into something you can apply to bids. There are two methods. Use the one that fits how you estimate.

Method 1 — Overhead as a percentage of revenue. Divide total overhead by projected annual revenue. In the example above: $222,200 / $900,000 = 24.7%. When you build a bid, add 24.7% on top of your direct costs to cover overhead. Then add your profit margin on top of that.

Method 2 — Overhead per billable crew hour. Estimate how many billable crew hours you produce per year. If you run 2 full-time crews for 46 weeks at 40 hours per week, that is roughly 3,680 crew hours. Divide overhead by billable hours: $222,200 / 3,680 = $60.38 per crew hour. Add that to your direct labor cost in every estimate.

Method 2 is more precise for companies where crews drive most revenue. Method 1 is simpler and works well for companies that mix labor, materials, and subcontractors. Pick one and use it consistently.

"I thought I was making $120k a year. When I actually ran the numbers, I was paying myself $72k and the business was keeping $48k — but overhead was eating all of it. Real profit was closer to $11k."

Step 3 — Verify Your Overhead Rate Against Industry Benchmarks

Landscape companies doing $500K to $2M in annual revenue typically run overhead rates between 18% and 30% of revenue. Below 18% usually means the owner is not paying themselves a market salary and is masking overhead. Above 30% usually means there is waste, excess headcount, or a lease that does not match current revenue.

If your overhead rate is above 35%, that is a signal — not a sentence. It might mean your revenue dropped this year while fixed costs stayed the same. It might mean you hired ahead of revenue. Either way, knowing the number lets you make a decision. You can cut costs, raise prices, or both. You cannot fix what you have not measured.

For a deeper look at what target margins should look like once overhead is covered, see the guide on gross profit margins for landscape companies.

Step 4 — Rebuild Every Bid With the Real Number

This is the step most contractors skip. They calculate overhead once, feel vaguely better about it, and then go back to pricing the same way they always did. That changes nothing.

Build overhead into your estimating template as a non-negotiable line item. Not a fuzzy markup. A specific dollar amount or percentage that shows up in every bid, every time. If your overhead rate is 25% and your direct job costs are $18,000, your overhead allocation is $4,500. Your bid floor — before any profit — is $22,500.

Then add your target profit margin on top: if you want 15% net profit, the math is $22,500 / (1 - 0.15) = $26,470. That is your minimum acceptable bid price. Anything below that and you are working for free or going backward.

Ledge builds this into the estimating workflow so overhead is calculated automatically as you add line items. You can also check free calculators to run your overhead rate before building it into your template.

Frequently Asked Questions