Job Cost Allocation Calculator

Overhead doesn't charge itself to jobs

Here's the contractor version of a classic mistake: you look at a job P&L — revenue minus direct labor, material, equipment — and see a nice positive number. Job was profitable, right? Then at year end, the business P&L shows the whole company barely broke even. How?

Overhead. Office rent, software, admin salaries, your own unbilled time, marketing, insurance, utilities, accounting. Those costs are real, they're paid out every month, and they have to come out of the gross margin on jobs. If you don't allocate overhead to jobs when you price and track them, every job looks profitable while the business slowly bleeds.

The allocation methods

There are four common ways to divide overhead across jobs. Each has tradeoffs:

• By direct cost — Each job's share of overhead = (job's direct cost ÷ total direct cost across all jobs) × annual overhead. Simple, easy to track. Distorts for material-heavy jobs (a $50k material drop-off soaks up overhead that didn't really happen).
• By labor hours — (Job's direct labor hours ÷ total direct labor hours) × annual overhead. Usually the best default for construction. Overhead largely scales with labor (more active jobs, more supervision, more PM time, more shop use).
• By revenue — (Job's revenue ÷ total revenue) × annual overhead. Quick and dirty. Over- allocates overhead to high-margin or high-price jobs, under-allocates to volume/low-margin work. Use only for rough sanity checks.
• Equal split — Same overhead to every job regardless of size. Only useful as a sanity check or for extremely uniform workload (e.g., a plumber running identical service calls all day).

A worked example

Three jobs this quarter: Smith kitchen ($22k cost, 180 hours, $32k revenue), Jones roof ($9.5k cost, 70 hours, $14.8k revenue), Miller addition ($48k cost, 420 hours, $72.5k revenue). Annual overhead: $120k (so $30k overhead to spread across this quarter's jobs).

Allocating by labor hours: total hours = 670. Smith gets 27% of overhead = $8,060, making total job cost $30,060 and gross margin just $1,940 (6%). Jones gets 10.4% = $3,130, total cost $12,630, margin $2,170 (15%). Miller gets 62.7% = $18,810, total cost $66,810, margin $5,690 (7.8%).

Now you see it: Jones (the small roof job) is the most profitable job on a margin basis. Smith and Miller look fine on top-line, but once overhead is layered on, neither is clearing double-digit margin. That's the kind of insight you can't see without allocation.

Using allocation to improve pricing

Once you know how much overhead each job type carries, you can price smarter:

• Labor-heavy, long-duration jobs need bigger margin cushion because they soak up more overhead.
• Material-heavy jobs with fast execution need less overhead cushion but should carry material markup.
• If a whole class of jobs is unprofitable after allocation, you either reprice or stop taking them. “Keeping the crew busy” with negative-margin work is how contractors run themselves out of business.

Reconciling at year end

Add up the allocated overhead across every job in the period. It should roughly equal your real overhead spend for that period. If it doesn't, you've either missed jobs in allocation, double-counted (e.g., categorized a supervisor's time as both overhead and direct job labor), or your overhead number itself is wrong. This reconciliation is a great year-end exercise with your bookkeeper.