Agency Overhead Calculator
Calculate your total overhead, overhead per employee, and the minimum rate you need to charge to cover costs.
Fixed Costs (Monthly)
Capacity
People who bill time to clients (excludes admin, sales, management)
Overhead Summary
Total Monthly Overhead
$18,800
$225,600/year
Note: Assumes 160 billable hours per employee per month. Your billable rate must exceed the minimum to cover salary, benefits, and profit. Add 30–50%+ to cover labor and margin.
What Counts as Overhead
Fixed vs. Variable Costs
Overhead typically includes fixed costs that don't vary directly with project volume: rent, utilities, insurance, software subscriptions, admin salaries, and marketing. Variable costs (subcontractors, project-specific tools, materials) are often tied to client work and may be passed through or marked up. For pricing decisions, focus on fixed overhead—what you must cover regardless of how many projects you run.
Common Overhead Categories
- Rent & utilities: Office space, electricity, internet, phone
- Software & tools: Project management, CRM, design tools, accounting
- Insurance: Liability, E&O, workers' comp
- Marketing: Website, ads, events, content, lead gen
- Admin salaries: Office manager, bookkeeper, non-billable roles
- Other: Professional fees, bank fees, office supplies, training
Managing and Pricing Around Overhead
How to Reduce Overhead
- Remote-first: Reduce or eliminate office rent
- Audit software: Cancel unused subscriptions and consolidate tools
- Automate: Use software to replace manual admin work
- Outsource selectively: Bookkeeping, HR, and IT can be cheaper outsourced
- Marketing efficiency: Double down on channels with best ROI
- Right-size admin: Ensure admin headcount matches agency size
Overhead Benchmarks
Agencies often target overhead at 20–30% of revenue. Higher overhead eats into margins and requires higher rates to stay profitable. Smaller agencies may have higher overhead percentages due to fixed costs; scaling can improve the ratio. Track overhead as a percentage of revenue over time and aim to keep it under 30% as you grow.
Using Overhead in Pricing
Your billable rate must cover: (1) direct labor cost, (2) overhead allocation per billable hour, and (3) target profit margin. The minimum hourly rate from this calculator covers overhead only. Add labor cost (salary + benefits ÷ billable hours) plus a margin (e.g., 20–40%) to get your target rate. If that rate exceeds market, reduce overhead or improve efficiency.
What Is Agency Overhead?
Agency overhead refers to the ongoing operational costs required to run your business that aren't directly tied to delivering client work. Unlike direct costs—such as billable employee salaries, freelancer fees, or project-specific materials—overhead expenses exist whether you have one active project or fifty. They're the cost of keeping the lights on.
Understanding overhead is critical for agency owners because it determines your breakeven point: the minimum revenue you must generate before a single dollar becomes profit. Agencies that don't track overhead accurately often underprice their services, leading to thin margins and cash-flow problems even when they appear busy.
Overhead falls into two broad categories. Fixed overhead remains constant regardless of workload—think office rent, insurance premiums, and salaried admin staff. Variable overhead fluctuates with activity levels but isn't attributable to a single project, such as utility bills that rise when more people work in the office or general software costs that scale with team size. For pricing and financial planning, fixed overhead deserves the most attention because those bills arrive every month whether revenue is up or down. Variable overhead still matters, but it's easier to adjust when workload changes.
Common Agency Overhead Categories
Knowing which expenses qualify as overhead helps you budget accurately and spot opportunities to cut costs. Below are the categories most agencies encounter.
- Rent & office space: Lease payments, coworking memberships, building maintenance, and property taxes. For remote-first agencies this may be near zero, but many still maintain a headquarters or meeting space.
- Software subscriptions: Project management platforms, CRM systems, design and development tools, accounting software, communication apps, and cloud storage. Subscription creep is one of the fastest-growing overhead line items for modern agencies.
- Insurance: General liability, errors & omissions (E&O), workers' compensation, cyber liability, and commercial property insurance. Premiums vary widely by agency size and service type.
- Accounting & legal fees: Bookkeeping services, CPA retainers, tax preparation, legal counsel, and contract review. These are easy to overlook but add up quickly, especially during growth phases or audits.
- Administrative salaries: Office managers, executive assistants, HR personnel, internal IT support, and any non-billable role whose work supports the agency as a whole rather than a specific client engagement.
- Marketing & business development: Your own website hosting, paid advertising, conference sponsorships, content creation for lead generation, and sales team compensation. These costs win future work but don't produce billable output today.
- Equipment & depreciation: Laptops, monitors, office furniture, cameras, and other hardware. Even if purchased outright, spreading the cost over the asset's useful life gives you a more accurate monthly overhead figure.
Overhead Rate Benchmarks by Agency Size
Your overhead rate—total overhead divided by total revenue—is one of the most important health metrics for an agency. A healthy target for most agencies is between 25% and 35% of revenue, but the ideal number depends on your size, business model, and growth stage.
- Solo practitioners & small agencies (1–5 people): Expect overhead between 15% and 25% of revenue. Fewer people mean fewer tools, less office space, and minimal admin staff. However, a single large expense—like a lease—can push the percentage higher fast.
- Mid-size agencies (6–20 people): Overhead typically lands between 25% and 35%. At this stage you'll likely need dedicated admin roles, more robust software, and possibly a physical office. The upside is that fixed costs get spread across more revenue-generating team members.
- Large agencies (20+ people): Overhead often runs 30% to 40%. Larger teams require HR, IT infrastructure, compliance processes, and management layers. While economies of scale help, complexity adds cost. Agencies at this level should benchmark against industry peers and audit overhead quarterly.
If your overhead rate exceeds 40%, margins are likely compressed and pricing pressure becomes severe. Track this metric monthly and investigate any sustained upward trend.
How to Reduce Agency Overhead
Trimming overhead doesn't mean cutting corners. The goal is to eliminate waste while preserving (or improving) the infrastructure that supports great client work. Here are five proven strategies.
1. Go Remote or Hybrid
Office rent is often the single largest overhead line item. Transitioning to a remote-first or hybrid model can save thousands per month. If you still need meeting space, on-demand coworking passes or a small flex office cost a fraction of a traditional lease. Many agencies that went remote during 2020 never returned—and saw their overhead drop by 15–25% as a result.
2. Audit Software Subscriptions
Run a subscription audit at least twice a year. Catalog every SaaS tool, check active usage, and cancel anything redundant or underused. Consolidate where possible—an all-in-one agency management platform can replace separate tools for project management, invoicing, time tracking, and client communication.
3. Negotiate Vendor Contracts
Vendors expect negotiation, especially at renewal time. Request annual billing discounts, multi-year rate locks, or bundled pricing. Even small wins—10% off a hosting bill, a free month on an annual plan—compound across dozens of vendor relationships.
4. Automate Administrative Tasks
Invoice generation, time-sheet reminders, report compilation, and client onboarding can all be automated with the right tools. Every hour of admin work you automate is an hour that can be redirected to billable activity or strategic planning. Automation also reduces the need for additional admin hires as you grow.
5. Outsource Non-Core Functions
Bookkeeping, payroll processing, IT support, and HR compliance are essential but rarely core to your value proposition. Outsourcing these to specialized firms often costs less than hiring in-house and gives you access to deeper expertise. Focus your full-time headcount on roles that directly generate revenue or differentiate your agency.
Overhead vs. Profit: Finding the Balance
Overhead and profit exist in tension. Every dollar spent on overhead is a dollar that doesn't reach the bottom line—but cutting too aggressively can backfire. Skimping on project management software might save $200 per month yet cost thousands in missed deadlines and rework. Eliminating your office entirely might hurt team culture and client perception for agencies where in-person collaboration matters.
The key is to treat overhead as an investment with a return. Quality tools improve delivery speed. Competent admin staff free billable team members to focus on client work. Strategic marketing generates the pipeline that sustains revenue. When evaluating any overhead expense, ask: does this cost enable more revenue or better margins than it consumes?
From a pricing perspective, your service rates must cover three layers: direct labor cost, allocated overhead, and target profit margin. If your overhead is well-managed, your rates stay competitive. If overhead balloons, you're forced to either raise prices—potentially losing deals—or accept thinner margins. Regularly benchmark your overhead rate, price your services with a clear margin target (typically 15–25% net), and revisit the equation whenever costs or revenue shift materially.
Frequently Asked Questions
What's a healthy overhead rate for agencies?
Many agencies aim for 20–30% of revenue. Higher than 35% can squeeze margins and require aggressive pricing. Overhead as a percentage often decreases as agencies scale because fixed costs spread across more revenue.
Should I include owner salary in overhead?
It depends. If the owner is billable, their salary is typically a direct cost. If the owner works on the business (sales, strategy, management) but doesn't bill, that compensation is overhead. For breakeven, include all non-billable labor in admin salaries.
How many billable hours should I use?
A common assumption is 160 hours per month (40 hrs/week × 4 weeks), but utilization is often lower—120–140 hours—due to internal work, PTO, and non-billable time. Use your actual utilization for more accurate rates; 160 is a conservative baseline.
What if my overhead is too high?
First, categorize every cost and identify what's essential vs. discretionary. Cut or reduce discretionary spend. Consider remote work to reduce rent, audit software subscriptions, and automate admin tasks. If overhead stays high, you may need to raise rates or increase utilization to cover it.
Control Your Overhead
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