The overhead was spread by revenue. The work wasn’t.

Most cost allocations are a convenience rather than a measurement, and that convenience quietly decides which customers you chase and which prices you defend.

By Steve 5 min read
Abstract bridge artwork for The overhead was spread by revenue. The work wasn’t.

Two jobs go out the door with the same gross margin on paper. One of them made money and one of them didn’t, and nothing in the management accounts will tell you which was which. The difference isn’t in the labour or the materials: those were measured. It’s in everything that was never measured and instead got spread across both jobs in proportion to what they billed. Almost every small and mid-sized business allocates shared cost this way at some point. Overhead is pooled, premises, admin, systems, the owner’s time,…

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