Overhead and Profit Calculator
Solve the markup multiplier your agency needs on direct labour cost to cover overhead and hit your target profit margin. The math agency P&Ls actually run, free, no signup.
Inputs
Your direct labour cost is the salary cost of your billable people. Overhead is everything else — rent, software, non-billable staff, marketing.
Result
The markup you need to charge on direct cost — and what that translates into as a billable rate.
Markup multiplier
1.69×
Every $1 of direct labour cost needs to bill at $1.69 to cover overhead and target profit.
Required annual revenue
$303,750
Minimum billable rate
$203/hr
| Direct labour cost | $180,000 |
| + Overhead (35%) | $63,000 |
| + Profit (20% of revenue) | $60,750 |
| = Required revenue | $303,750 |
Inputs are in a typical small-agency band. The markup multiplier above is your floor — charge below it and you're losing money on every hour.
The overhead and profit formula, explained
Overhead and profit is the standard cost-plus method service businesses use to set billable rates. It treats every dollar of revenue as the sum of three things: the direct cost of doing the work, the share of overhead that work has to absorb, and the profit margin the business needs to retain.
The formula is straightforward to state but trips agencies up because profit is computed as a percentage of revenue, not as a markup on cost. That makes the equation iterative: revenue and profit reference each other. The calculator above solves it algebraically in one step:
revenue = direct cost × (1 + overhead%) / (1 − profit%)
The output is the markup multiplier — the number you multiply direct labour cost by to get the billable price you need to charge. Most small agencies discover their multiplier sits between 1.5× and 2.0× once they put real numbers in. Anything below that range means overhead is unusually low or profit is being absorbed silently. Anything above usually means overhead is bloated, often by SaaS sprawl.
This calculator is paired with our agency hourly rate calculator (which solves for the rate per billable person) and the project profitability calculator (which checks specific clients against the markup floor). Use this one to set the policy. Use the others to enforce it.
Frequently asked questions
What is the overhead and profit formula?+
Required revenue equals direct cost times (1 plus overhead percentage) divided by (1 minus profit percentage). For example, with $100 of direct labour cost, 30% overhead, and 20% target profit, the required revenue is $100 × 1.30 / 0.80 = $162.50. That works out to a markup multiplier of 1.625× on direct cost. The calculator above solves this equation for the inputs you plug in.
What is a typical overhead percentage for a small agency?+
Small agencies (2–10 people) typically run 25–40% overhead as a percentage of direct labour cost. Larger agencies push higher because management layers and office overhead grow non-linearly with headcount. Solo consultants can run as low as 10–15% because their overhead is essentially just SaaS subscriptions and a portion of home-office costs.
What is a healthy profit margin for an agency?+
A healthy gross profit margin for a small agency is 15–25% of revenue. Below 12% means there is no margin for scope creep, bad debt, or reinvestment. Above 30% is achievable but typically only for productised or highly specialised agencies that can sustain premium pricing. Use 20% as a working default if you do not yet have historical numbers.
How does profit margin differ from markup?+
Profit margin is expressed as a percentage of revenue ("we kept 20% of every dollar that came in"). Markup is expressed as a multiplier on cost ("we charged 1.625× what the work cost us to deliver"). The two are mathematically equivalent but agencies trip on this constantly. 20% profit margin on revenue requires a 1.25× markup on cost — not a 1.20× markup. The calculator above handles the conversion correctly.
Should I include benefits and payroll taxes in direct labour cost?+
Yes. Direct labour cost is the fully-loaded cost of billable team members — base salary, benefits, payroll taxes, and any equity expense. In the US that typically adds 25–30% on top of base salary; in the UK, 12–18%. Failing to include the loaded cost is one of the most common reasons agencies under-price their billable rate.
Why does my hourly rate need to be so high relative to my salary?+
Because of three multipliers stacked together. Loaded cost takes base salary up by ~30%. Overhead adds another 30–40% on top of that. Profit requires another 20–25% margin on revenue. And billable utilisation is rarely above 75% — so the cost has to be recovered over fewer hours than you might think. Stacked, that turns a $100K base salary into a required billable rate of $150–200/hour for the agency to be sustainable.
Use this with the other agency pricing tools
Agency Hourly Rate Calculator
Solves for the minimum billable hourly rate per person, using your target income, utilisation and the same overhead-and-profit math.
Open the toolProject Profitability Calculator
Stress-test specific clients against the markup floor. See which engagements are profitable and which are leaking money.
Open the toolRetainer Sizing Tool
Size a monthly retainer that covers delivery, overhead and target margin — including a scope-creep buffer.
Open the toolCompanion guide
How to set your agency's hourly rate
The full walkthrough on agency pricing math — the four reasons agencies under-charge, the utilisation trap, and what to do this week.
Track the numbers behind the markup.
Ascend tracks billable hours against the project, captures overhead-side costs, and builds invoices from the same data — so the overhead and profit math stays honest in real life, not just on paper.
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