The Service Expense Calculator totals the direct and operating costs required to run a service business and shows how those costs compare with revenue. It separates labor and subcontractor delivery costs from overhead such as software, rent, insurance, marketing, and administration.
The result is useful for annual budgeting, pricing reviews, cost-control planning, and evaluating whether current revenue can support the operating model. It also reports expense per billable hour, which can help service firms connect their cost base to hourly or project pricing.
1. Enter delivery labor
Include wages or contractor payments tied to client work.
2. Add operating overhead
Enter software, facilities, marketing, and other recurring expenses.
3. Provide annual revenue
Use the same accounting period as the expense inputs.
4. Enter billable hours
Use hours actually available for client billing during the year.
5. Review cost structure
Compare direct costs, overhead, expense ratio, and cost per billable hour.
Where:
Assumptions: All inputs cover the same annual period and exclude pass-through client costs unless intentionally included.
Accounting classifications vary; use categories that match your internal reporting.
For budgeting and planning; not accounting or tax advice.
Given:
Calculation:
Direct costs = $420,000 + $120,000 = $540,000
Overhead = $36,000 + $60,000 + $48,000 + $54,000 = $198,000
Total expenses = $738,000
Expense ratio = $738,000 ÷ $1,000,000 × 100 = 73.8%
Expense per billable hour = $738,000 ÷ 12,000 = $61.50
Result: $738,000 in annual expenses.
The firm must recover about $61.50 per billable hour before profit, assuming all entered costs are allocated across billable hours.
Yes, when you want a full employment-cost view. Add wages, employer taxes, benefits, and other recurring labor costs consistently.
Exclude true pass-through costs if clients reimburse them separately and you are analyzing internal operating expenses. Include them when they affect pricing or are not fully recoverable.
An expense ratio above 100% means entered expenses are greater than revenue for the period. Check timing, one-time costs, and whether revenue and expenses use the same basis.
Include market-rate compensation for work the owner performs. Separating compensation from distributions makes operating costs more comparable.
No. It is a cost allocation measure. A sustainable price also needs to cover nonbillable time, risk, taxes, and target profit.