There's a specific kind of bad year that happens to shops with full order books. The work came in, the quotes were accepted, the pieces went out the door — and there's nothing in the account. Almost always, the money went out through overhead nobody was charging for.

Overhead is everything your shop spends that isn't tied to one job. It runs whether you're building or sitting idle. And because it never shows up on a single invoice, it's the easiest cost in the business to leave out of a price.

The costs that make the list

Most woodworkers remember these:

• Shop rent or mortgage share
• Electricity, heat, and water
• Liability and tool insurance
• Internet, phone, and software subscriptions

Those are the visible ones because they arrive as bills with your name on them.

The costs that don't

These are the ones that quietly eat a year:

Consumables. Blades, router bits, abrasives, glue, blue tape, rags, dust bags, shop vac filters, gloves, mineral spirits. Individually trivial, collectively a real line item. You buy them constantly and almost never attribute them to a job.

Tool replacement. Your machines are being consumed. A bandsaw doesn't fail on a schedule, but it does fail, and the day it does is a bad day to discover you have no fund for it. Depreciation is an accountant's word for a real cash event you can plan for.

Sharpening and maintenance. Blade and bit sharpening, jointer knives, belt replacements, bearing swaps, the annual dust collection clean-out.

Vehicle. If you're hauling lumber and delivering finished work, some share of your truck belongs to the business — fuel, insurance, maintenance, tires.

Waste disposal. Offcut hauling, dust and chip removal, finish waste disposal where you can't put it in household trash.

Shop improvements. Lighting, outlets, racking, a new bench, dust ducting. Not glamorous, not free.

Your unpaid admin time. This one is different, and the difference matters. Quoting, invoicing, emails, chasing payment, and bookkeeping don't cost you dollars — they cost you hours. Don't put them in the overhead column; they belong in your billable-efficiency number instead. Counting them in both places inflates your rate twice.

Build the number once

Add up a normal month. Illustrative figures — yours will look nothing like these, and that's the point of doing it yourself:

That's $12,660 a year. Now add a tool replacement fund — say $3,000 a year set aside so the bandsaw is a purchase rather than a crisis. Annual overhead: $15,660.

Turn it into an hourly number

Overhead only becomes real when it's attached to the hours you sell.

If you're in the shop 40 hours a week, take two weeks off, and 70% of your shop time is billable:

• 40 × 50 weeks × 0.70 = 1,400 billable hours
• $15,660 ÷ 1,400 = $11.19 per billable hour

Eleven dollars and change of every hour you sell is spoken for before you've paid yourself a cent. A shop billing at $40/hour and thinking of it as wages is actually working for about $29 — and that's before self-employment tax and income tax take their share.

Run the whole calculation, including tax, in the free Pay Yourself Calculator. Overhead and tool budget are inputs there for exactly this reason.

Recover it in the rate, not in a surcharge

You can bury overhead in your hourly rate or add it as a separate per-job line. Baking it into the rate is simpler and harder to forget:

• Target take-home pay: $60,000
• Annual overhead: $15,660
• Revenue needed: $75,660
• ÷ 1,400 billable hours = $54.04 per hour

Every hour you quote now carries its share automatically. No line item to explain, nothing to forget on a rushed estimate, no client asking why there's a "shop fee" on their table.

What you must not do is both — bake it into the rate and add an overhead line to the job. That's charging for the same rent twice. It won't feel like an error, because the quote will simply look a bit high, and you'll blame the market.

The consumables trap

Consumables deserve their own warning because of how they scale. A job with a lot of sanding and finishing burns abrasives, tack cloth, finish, and thinner at a completely different rate than a job that's mostly joinery. Average consumables across all jobs and your finish-heavy work quietly subsidizes everything else.

Two reasonable approaches:

1. Keep consumables in overhead and accept the averaging. Fine for a shop with a consistent product mix.
2. Track the big-ticket consumables per job — finish, abrasives, glue on large glue-ups — as job materials, and leave only the genuinely shared items in overhead.

Option two is more accurate and more work. Pick based on how much your jobs differ from each other, not on which one sounds more professional.

Revisit it once a year

Overhead creeps. A subscription here, a rent increase there, a second insurance policy after you bought the wide-belt sander. The number you calculated two years ago is not the number you're paying now, and every month you quote off the old figure is a month of small, invisible losses.

Put it on the calendar. Recalculate annually, and any time something structural changes — new space, new machine, new vehicle. Then requote from the new number, consistently, on every job. Consistency is the whole game, and it's what QuoteItRight is built to enforce: your rate and overhead defaults live in one place and carry into every quote you build.

FAQ

Does my own salary count as overhead? No. Your pay is what the whole exercise is for — it's the target the rate is built to hit. Overhead is what the shop consumes before you get paid. If you employ someone else, their wages are a genuine cost, but they're usually treated as direct labor when they're building and overhead when they're not.

What about the garage I already own? There's no bill, but there is a cost: the space, the wear, the utilities, and the fact that a growing shop eventually has to rent somewhere. Many one-person shops charge the business a modest notional rent so the number doesn't collapse the day they move into a real space. At minimum, capture the utilities and the tool budget.

How do I handle a very slow month? Overhead doesn't drop when the work does, which is precisely why margin exists on top of your cost basis. A slow month is funded by the profit in the busy ones. If your prices only cover cost plus your wage, a slow month comes directly out of your pocket.