Electrical Contractor Overhead Costs: What Drives Them

What to take away

Where overhead lands in the numbers

Overhead is every cost you carry whether or not a van leaves the yard: rent, insurance, vehicles, office payroll, software, licensing and marketing. Direct costs are field labor and material tied to one job.

The overhead percentage is total overhead divided by revenue, and it sets the multiplier you apply to direct job costs. Two contractors can charge the same rate and land at different margins, because their percentages differ.

The IRS lists most of these lines as deductible business expenses in Publication 535, Business Expenses, so the percentage has a tax dimension as well as a pricing one.

Rent, yard space and shop costs across three markets

Metro contractors rent small industrial units at the top of the local market. Suburban shops sit in cheaper parks with room for a yard. Rural shops often run from owned property, which lowers cash rent and hides capital.

Substitute your own numbers before you set a rate.

Travel time and the real cost per mile

Fuel gets the attention. The loaded hourly cost of the electrician in the driver's seat gets the money. A 45 minute drive between two calls is time you cannot bill.

Cost per mile carries fuel, insurance, depreciation, tires, maintenance, registration and the replacement cycle. Add the driver's loaded hourly rate and unpaid windshield time. Route density moves this number more than fuel prices do.

Three common ways to price it:

Example: one service call, two route densities

Example numbers only, built so you can swap in your own. Assume a loaded field cost of $65 per billable hour and a van cost of $0.75 per mile.

A metro stop sits 12 minutes and about 4 miles from the previous job. A rural stop sits 55 minutes and about 42 miles away. The gap is 43 minutes and 38 miles per call.

At $65 per hour, the extra 43 minutes is roughly $46 of unbillable labor. The miles add about $29. A rural call starts $75 behind a metro call before the first tool comes out.

Permits, inspections and jurisdiction count

Metro work crosses city, county and sometimes special district lines. Each authority having jurisdiction keeps its own fee schedule, inspection window and correction list.

Rural work usually deals with one county. The cost moves to inspection scheduling instead. If the inspector covers a large territory, a failed inspection can cost a half day.

Helpers, labor burden and van stock depth

Wage is not cost. Payroll taxes, workers compensation, general liability, paid time off, a truck and a phone sit on top of the hourly rate.

The Bureau of Labor Statistics reports electrician wages by metro area in its Occupational Employment and Wage Statistics survey, which is a starting point for that line.

A thin rural labor pool means you train helpers who leave for a metro wage. Contractors who also work near the Canadian border can compare provincial WCB premium rates, because workers compensation rate groups differ by province.

Recovering overhead without guessing

A rural contractor paying lower rent can still need a higher recovery rate per billable hour than a metro competitor. The rent line falls; the travel time and call density lines rise.

Pick one recovery base and keep it. Hourly recovery suits service work, and percentage of job cost suits project work.

Managing overhead is a cash flow exercise as much as a pricing one, and the U.S. Small Business Administration's guidance on managing business finances covers the review cadence.

Geography also decides where the next truck goes. Demand in the next few years is tracking data centres and grid upgrades, and those loads cluster by grid capacity rather than by population.

Overhead geography is one input. This site's coverage of electrical contractor business operations handles the rest.

Common questions