July 31, 2026·6 min read

Landscape Architecture Firm Overhead Rate Explained

Learn how to calculate your landscape architecture firm overhead rate, what's included, and how to use it to price projects and protect margins.

Most landscape architecture firms underprice their work not because they underestimate hours, but because they underestimate overhead. If your overhead rate is wrong, every fee proposal you write is wrong — and you won't know it until the year-end P&L tells you.

What the Overhead Rate Actually Measures

Your overhead rate is the ratio of indirect costs to direct labor costs. It tells you how much overhead you incur for every dollar of billable labor you produce. The formula is straightforward:

Overhead Rate = Total Indirect Costs ÷ Total Direct Labor Costs

If your firm spends $420,000 per year on indirect costs and your total direct (billable) labor costs are $600,000, your overhead rate is 0.70, or 70%. That means for every dollar of direct labor, you're spending an additional $0.70 just to keep the lights on and the business running. This number feeds directly into your billing rate calculation and your break-even multiplier.

What Counts as Indirect vs. Direct

This is where firms get sloppy, and the error compounds across every project. Direct costs are expenses you can tie to a specific project — billable staff hours, reimbursable expenses, subconsultants. Indirect costs are everything else.

Typical indirect costs for a landscape architecture firm:

Rent and utilities for office space
Non-billable staff time (principal business development hours, bookkeeping, HR)
Software subscriptions not billed to projects (Adobe CC, CAD licenses, project management tools)
Professional liability and general liability insurance premiums
Marketing, proposal prep, and conference attendance
Continuing education and licensure fees

The tricky category is principal time. If you're a principal billing 60% of your hours to projects and spending 40% on business development and administration, only that 60% is direct labor. The 40% is overhead. Most small firms don't track this split consistently, which inflates their apparent overhead rate and distorts their multiplier.

How to Calculate Your Firm's Overhead Rate Step by Step

Pull your last full fiscal year's financials. You need two numbers: total direct labor cost and total indirect cost. Direct labor cost is the gross payroll (salary plus employer-side taxes and benefits) for hours that were billed to projects. Indirect labor cost is the gross payroll for all non-billable hours — vacation, sick time, business development, internal meetings, and unbillable project time.

Worked example:

Category	Amount
Direct labor (billable hours × loaded cost)	$580,000
Indirect labor (non-billable hours, loaded)	$210,000
Rent + utilities	$72,000
Insurance (PL + GL)	$38,000
Software subscriptions	$24,000
Marketing and BD	$31,000
Other indirect	$18,000
Total indirect costs	$393,000
Overhead rate	0.678 (67.8%)

Your billing rate multiplier — the number you apply to raw salary cost to set a charge-out rate — is built from this. A standard multiplier is 1 + overhead rate + profit margin. At 67.8% overhead and a 15% target profit margin, your multiplier is 1 + 0.678 + 0.15 = 1.828. If a designer's loaded hourly cost is $45, their billing rate should be at least $82.

Industry Benchmarks: What's Normal

PSMJ and ACEC publish annual financial performance surveys that include overhead rate data for design firms. For landscape architecture specifically, overhead rates typically run between 55% and 110% of direct labor, with the median around 75–85% for firms with 5–20 staff.

Firm Size	Typical Overhead Rate
Solo or 2-person	45–65%
3–10 staff	65–90%
11–30 staff	80–110%
30+ staff	100–130%

Larger firms carry higher overhead because they have dedicated administrative staff, HR functions, and more complex infrastructure. If your 8-person firm is running 110%, something specific is driving it — probably rent in a high-cost market, high insurance premiums, or a principal spending significant time on non-billable work without adjusting their billing rate accordingly.

How Overhead Rate Connects to Your Billing Rates

Your overhead rate isn't just an accounting exercise. It directly sets the floor on every billing rate in your fee schedule. If you set billing rates before calculating your overhead rate, you're guessing — and guessing conservatively usually means leaving money on the table.

The Multiplier Method

The most common approach for landscape architecture firms is the multiplier method. You calculate a loaded hourly cost per staff member (salary ÷ 2,080 hours, plus benefits and payroll taxes), then apply the overhead multiplier and profit target.

A project manager earning $85,000 salary with 28% benefits loading has a loaded hourly cost of approximately $52. At a 1.83 multiplier, their billing rate is $95/hour. If you've been billing that PM at $85/hour because "that's what the market expects," you're subsidizing every project they touch.

When to Update Your Rate

Recalculate your overhead rate annually at minimum. Mid-year is worth a check if you've added staff, moved offices, or taken on a large subconsultant-heavy project that inflated your direct costs without proportionally increasing indirect ones. A significant shift in your utilization rate — say, dropping from 68% billable to 55% billable firm-wide — will spike your effective overhead rate even if your actual indirect costs didn't change.

Common Mistakes Firms Make

1. Treating principal non-billable time as zero cost. If a principal spends 30% of their time on business development and that time isn't tracked or loaded into overhead, the firm is systematically underpricing everything. That time has real payroll cost.

2. Excluding benefits and payroll taxes from loaded labor cost. Gross salary alone understates your direct labor cost by 20–30%. Employer FICA, health insurance, 401(k) match, and workers' comp all belong in the loaded rate.

3. Using last year's overhead rate on next year's projects. If you signed a new lease, added a staff member, or your PL insurance premium jumped, your overhead rate changed. Proposals written on stale numbers erode margin before the project starts.

4. Conflating reimbursable expenses with overhead. Reimbursable costs — printing, travel, permit fees, subconsultants — are pass-throughs billed to the client. They don't belong in your overhead calculation. Including them inflates your rate and makes your multiplier look worse than it is.

5. Calculating overhead on gross revenue instead of direct labor cost. Some firms accidentally use total revenue as the denominator instead of direct labor cost. This produces a much lower-looking overhead rate that flatters the firm's apparent efficiency without being useful for billing rate calculations.

6. Not separating overhead by department or studio. In firms with a construction administration team and a design team, overhead burden can differ significantly. Blending them into a single firm-wide rate means your CA team's billing rates may be too low while your design team's are too high — or vice versa.

How Phasewise Handles This

Phasewise tracks billable versus non-billable hours at the staff level across every project, which gives you the direct labor cost data you need to run an accurate overhead calculation without pulling numbers from three different spreadsheets. The budget-versus-actual reporting shows you in real time when a project is absorbing more indirect time than planned — the early signal that your overhead assumptions are drifting. It won't replace your accountant, but it closes the gap between your project management data and your financial model.