On Target 11 – Adding overheads

With the direct costs calculated for the school contract example (B&CB 21 June), there now comes the thorny issue of the ‘overhead.’ This can mean different things to different people, and how much of the overhead should be charged to each individual job is not an exact science.

You may recall, I regard overhead as the general costs of running the business, including my salary…

Like the direct costs, firstly, establish the core information

General insurance Employer liability, cyber, building, officer liability etc
Support staff (including directors) Anyone other than drivers and engineers, who are paid under PAYE
Premises Running costs, rent, rates, finance if applicable, depreciation
IT, support vehicles, equipment Telephone, computer maintenance and software, depreciation, equipment lease costs/depreciation
Training, welfare, marketing/PR entertainment, professional services All training costs (excluding in house staff), marketing, recruitment, auditor, outside professional services etc


It should be reasonably easy to ascertain these costs; the difficulty comes in how to allocate them to a fleet that varies from 7 to 70 seats! As each vehicle must bear its share, it seems to me the fairest way to allocate the general overhead, is according to the number of seats. While this might be debatable for a bus which has fewer seats than a coach, but has more capacity given the ability to stand, it seems logical to me and far better than charging a flat rate across the fleet, as a small vehicle would be priced out of the market and a 70-seater too cheap. Given the traveling public, would normally assume the more seats the more it costs, this seems a logical way to go forward. It has always worked for me anyway.

This is how it works.

Total general overhead divided by the number of seats across the fleet = cost per seat x the seating capacity required = general overhead contribution. Bear in mind these are my figures; yours need to be substituted.


Total general overhead £1,496,000
Total number of seats in the fleet 4,550 seats
Divide 4,550 (seats) into £1,496,000 £328.79 per seat (per annum)


Ready Reckoner

Vehicle seating capacity Cost per seat per annum Total annual charge

X number of seats

240 days utilisation 364 days utilisation
7 seats £328.79 £ 2,301.53 £ 9.58 per day £ 6.32 per day
16 seats £328.79 £ 5,260.64 £21.91 per day £14.45 per day
36 seats £328.79 £11,836.44 £49.31 per day £32.51 per day
53 seats £328.79 £17,425.87 £72.60 per day £47.87 per day
70 seats £328.79 £23,015.30 £95.89 per day £63.22 per day


The benefits of increased utilisation can be clearly seen. This suggests year-round bus services and express coach, as two examples, can be priced significantly lower pro-rata. However, depends on your definition of a day’s hire. One job, back in three hours, doesn’t make a full day in my view, but it is easy to kid yourself you are busier than you really are.

It is always tempting to round up and down to whole pounds, when calculating, but it can make quite a difference. I work to the penny and round up or down only the final daily figure, therefore never more than 49 pence out! Even that adds up to nearly £80 a year up or down. The price of a good meal for two.


To recap, we now have the basics to get the final contract price, with a summary of the costs as follows:

Direct costs to operate the contract £305.90 per day £58,121 per annum 190 days
Overhead contribution £ 72.60 per day £13,794 per annum 190 days
Total costs to operate £378.50 per day £71,915 per annum 190 days


There can be little doubt as to the direct cost of operating the vehicle, with very little flexibility in that calculation. If my direct costs are higher than the amount I get for the job, then I am subsidising the school authority.

Marksman Travel is a generous company, but not yet a charity. The conundrum comes in how much of the overhead do I cover? Every vehicle should take its fair share, so if one is reduced, another must contribute more. Should my wealthier clients pay more and subsidise the school authority?

Now comes the tricky bit, which might require some ‘creative” accounting, as I need to consider: The effects of inflation over the 5-year contract term. Remember, no inflation clause allowed. How can I man the contract, and is there potential for saving on driver’s costs? How much profit should I add?

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