How to Calculate Overhead & Profit

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Business calculations help you fully assess the demands of your business. You may think your company carries a profit; however, you must understand the difference between income and profit. You need to subtract overhead costs from income to assess the actual profit you make. You can perform some simple calculations to complete this task.

Calculate your overhead. All expenses of your business represent overhead except for those of direct labor, direct materials and outside subcontractor costs. Examples of overhead include advertising, insurance, legal fees, rent, repairs, supplies, taxes, utilities and accounting. A specific example would be an annual filing fee for your corporation issued by the state.

Calculate your other expenses. Calculate those expenses you incur that don’t represent overhead. These include direct labor and direct materials. For example, if you needed to purchase some labor or materials for a specific client, those costs only relate to that client, not to your entire overhead. A specific example would be the cost of a handyman to fix the plumbing for a client.

Calculate profit. Add all of your overhead and other expenses. Subtract that full amount from your net income. This represents your actual profit realized.

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