Overheads are all the expenses associated with running the business, other than the cost of materials and on-site labour.

These expenses will vary depending on the size of the business, the services it offers, and the employment arrangement it has with workers and staff.

Most companies use a percentage 'mark-up' on each job to build in a proportion for these overheads.

This percentage figure is generally reviewed from time to time by the company's management to make sure it's still covering the costs adequately without making the quotes uncompetitive.

Set out below are some of the overheads that need to be allowed for.

1. Overheads on direct labour

Direct labour refers to the on-site workers involved in the actual installation.

In the last lesson, we looked at this cost in terms of pay rate per hour. But the actual cost to the business may be much more than this amount.

If they're contractors, the workers are likely to cover their own overheads, in which case there won't be any hidden costs. But if they're employees, their cost to you will include all of the obligations you owe them as their employer.

These may include:

• Allowances, such as tooling, clothing, travel, meals and shift loadings
  
  
• Leave entitlements, including public holidays, annual leave, sick leave, and long service leave
  
  
• Superannuation, which is currently set at 9% of an employee's wage and will soon move to 12%
  
  
• Workers' compensation insurance, which is calculated as a percentage of the total wages bill.

Some of these expenses may already be built into the rate per hour you use for your direct labour costings.

But others will need to be added somewhere along the line as 'overheads', so that your business is covered for them in the overall quotation.

2. Indirect labour

Indirect labour refers to the work done by all the support staff who are not directly involved in the installation.

Depending on the size of the business, there may be sales people, clerical assistants, supervisors and other people needed to keep the wheels turning so the installers have always got a steady flow of work.

3. Other overheads

There may be various other overheads that your business incurs in its day-to-day operations. These could include:

• Utilities, such as electricity, gas, water and telephone
  
  
• Insurance for vehicles, buildings, contents and public liability
  
  
• Purchase of plant and equipment
  
  
• Repairs and maintenance on plant and equipment
  
  
• Consumables, such as stationery and fuel
  
  
• Training for apprentices and other employees