A job can show a positive gross profit and still fail to support the company. That happens when pricing covers direct delivery costs but ignores the overhead required to operate.
Separate direct and overhead costs
Direct costs can be traced to a sale. Overhead supports the whole business: administration, rent, insurance, bookkeeping, management, general software, and nonbillable time.
Choose a practical allocation method
You can allocate overhead by billable hour, labor dollar, project, transaction, or percentage of revenue. The best method reflects what actually drives the workload.
For example, if monthly overhead is $12,000 and realistic billable capacity is 600 hours, the overhead requirement is $20 per billable hour before direct cost and profit.
Use realistic capacity
Do not divide overhead by every paid hour. Staff meetings, sales, administration, training, holidays, and unfilled capacity reduce the hours available for customer work.
Review the result
- Confirm the price covers direct cost.
- Confirm it contributes enough toward overhead.
- Add the profit required to reinvest and absorb risk.
- Compare the result with customer value and market alternatives.
If the market will not support the required price, redesign the service, reduce cost, improve utilization, or change the target customer rather than accepting invisible losses.