Overhead and Profit Calculator

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.

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.

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.

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.

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.

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.

In construction and insurance restoration, overhead and profit (O&P) is conventionally set at 10% overhead and 10% profit — a combined 20% markup on direct repair costs. For agencies and professional services firms, the benchmarks are higher: 25–40% overhead (as a percentage of direct labour cost) and 15–25% profit margin on revenue. The difference reflects structure — agencies carry higher proportional non-billable cost in management, sales, and software relative to direct labour. Enter your specific overhead and target profit margin above; the result reflects your actual cost structure rather than an industry average.

Profit is expressed as a percentage of revenue, not of cost, which creates a compounding effect. A 30% overhead rate alone produces a 1.30× multiplier on direct cost. Adding a 20% profit target does not simply add 0.20. It requires dividing by (1 − 0.20) = 0.80, producing a final multiplier of 1.30 / 0.80 = 1.625×. This means a 20% profit margin on revenue requires a 25% markup on cost, not 20%. Many agencies under-price because they apply the profit target as a markup on cost rather than a margin on revenue. The formula, revenue = direct cost × (1 + overhead%) / (1 − profit%), handles the correct calculation automatically.