In the application go to Settings | Time to find the Overhead Factor.
The Overhead Factor is used to allocate overhead costs to your projects. This enables each project to carry its share of the burden, and enables us to calculate your net profit per project.
CAUTION: Notice in the illustration that there are two payroll expenses - Direct and Overhead. You must have your labor separated into at least these two categories.
Payroll Direct (Direct Labor) is payroll paid to employees for time spent working on revenue-generating activities such as projects.
Payroll Overhead (Indirect Labor) is payroll paid to employees for time spent on things such as marketing, professional development, staff meetings, holidays, and vacation. This will also include payroll taxes and other benefits such as health insurance.
Calculating your Overhead Factor
- Run a Profit and Loss report from QuickBooks for the most recent 12 months.
- Assuming that your Payroll Direct (direct labor) is part of your Expenses, not Cost of Good Sold, subtract your Payroll Direct from your Total Expenses. This yields your Overhead.
- Divide your Overhead by your Payroll Direct.
This should give you a value between 1 and 2. The average we see is about 1.6. This means that there are 1.60 dollars of overhead for every dollar of direct labor.