Why IT Services Owners Should Care
For IT services companies and MSPs, overhead includes every expense that doesn't directly deliver client services. Tooling stacks, certifications, internal infrastructure, and non-billable time are the big drivers. MSPs carry heavier tooling overhead than most service businesses — RMM, PSA, backup, security, and monitoring tools can cost $50-200 per managed endpoint per month.
Industry Benchmarks
30-40% of revenue
Healthy Range
41-50% of revenue
Warning Zone
Over 50% of revenue
Danger Zone
Industry context: Break-fix focused: 25-35%. Managed services: 35-45%. MSPs with 24/7 coverage: 40-50%. Higher service tiers require more tooling and staffing overhead.
Source: IT services/MSP financial benchmarks, 2025
How to Calculate Overhead Costs
Formula
Overhead Rate = (Total Overhead Costs / Total Revenue) × 100
In plain English
What percentage of every dollar you earn goes to keeping the business running (not counting direct service delivery costs)
Example: Apex IT Solutions
Annual Revenue 8 technicians, 500 managed endpoints | $1,200,000 |
Tooling Stack (500 Endpoints) RMM, PSA, backup, security, monitoring, docs | -$96,000 |
Admin Staff (2 People) Office manager and dispatch | -$95,000 |
Office + Server Lab Office space, lab environment, utilities | -$48,000 |
Certifications & Training Microsoft, Cisco, CompTIA, vendor training | -$32,000 |
Insurance & Compliance Cyber liability, E&O, general liability, audits | -$30,000 |
Internal Infrastructure Internal network, demo lab, development tools | -$24,000 |
Marketing & BD Website, Google Ads, partner events, sales | -$48,000 |
Non-Billable Time 20% of tech comp (internal projects, docs, bench) | -$96,000 |
Miscellaneous Vehicles for on-site, phone systems | -$18,000 |
Calculation
($487,000 overhead / $1,200,000 revenue) × 100 = 40.6% overhead rate
This MSP spends 41 cents of every dollar on overhead. Tooling and non-billable time together account for nearly 40% of total overhead. If gross margin is 52% ($624K), overhead of $487K leaves $137K net profit (11.4%). Optimizing either tooling or utilization has outsized impact.
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Get My Free ScoreCommon Problems in IT Services
Symptom
Monitoring, backup, security, and documentation tools accumulated from different sources
Impact
Overlapping tool costs can run 20-30% higher than a consolidated stack. Plus, multiple dashboards reduce technician efficiency.
How to Improve Your Overhead Costs
How to do it
Audit all tools by function. Identify overlaps (two monitoring tools, three documentation platforms). Negotiate bundle pricing with primary vendor. Target: one tool per function.
Expected impact
Consolidating typically saves 20-30% on tooling costs. On $96K annual tool spend, that's $19K-29K back in profit.
Key Takeaways
What it measures
The ongoing expenses of running your business that aren't tied to delivering a specific product or service
Healthy range for IT Services
30-40% of revenue
Formula in plain English
What percentage of every dollar you earn goes to keeping the business running (not counting direct service delivery costs)
Most common problem
Tool sprawl from multiple vendors
Fastest fix
Consolidate tooling stack
Related Financial Metrics
Other important metrics for IT Services
Overhead Costs in Other Industries
See how overhead costs compares across different business types
Cleaning Companies
Cleaning company overhead runs 10-18% solo, 20-28% for small teams, and 25-35% for larger operations. See benchmarks by company size.
Salons & Spas
Salon overhead averages 25-38% of revenue. Booth rental runs 20-30%, employee model 30-45%, high-end hits 35-50%. See benchmarks by salon type.
Restaurants
Restaurant overhead averages 20-30% of revenue. Fast-casual runs 18-25%, full-service 25-35%, fine dining hits 30-40%. See benchmarks by format.
HVAC Contractors
HVAC overhead averages 25-35% for residential and 30-40% for commercial. Larger fleets trend higher. See the benchmarks and where to cut.