Overhead Recovery: What to Charge Per Billable Hour to Break Even

What overhead recovery means

Overhead is every cost that keeps the business running but isn’t tied to one specific job — rent, office salaries, insurance, vehicle payments, software, utilities, marketing. Overhead recovery is the practice of allocating a share of that total to every billable hour, so your prices cover it. Skip this step and each job might look profitable on labor and materials while the business quietly loses money (job costing).

The formula

Overhead recovery rate = Total annual overhead ÷ Total annual BILLABLE hours

This tells you how much every billable hour must contribute just to cover fixed costs — before any profit.

Example

• Total annual overhead: $200,000
• Total billable hours across your techs: 6,000
• Overhead recovery rate = $200,000 ÷ 6,000 ≈ $33/billable hour.

So every billable hour needs to carry about $33 of overhead on top of the loaded labor cost — before you add a cent of profit. (Use your own numbers.)

How it fits the full price

Your break-even hourly cost is:

Loaded labor rate + Overhead recovery rate = Break-even

Then add profit margin to get your price. Using earlier examples: ~$53 loaded labor + ~$33 overhead = ~$86/hour just to break even. Charge less and you lose money no matter how busy you are (labor burden, price book).

Why “busy and broke” happens

The classic trap: a contractor prices off wage + parts + a little markup, stays slammed all year, and can’t figure out why there’s no money. The answer is almost always un-recovered overhead. Recovering it is the difference between revenue and profit.

Manage the two levers

• Raise billable hours (efficiency, utilization) to spread overhead thinner.
• Control overhead — but don’t starve the things that grow you.
• Price to recover it and hit trade margins (benchmarks).
• Raise prices when overhead climbs (raising prices).

The cheapest overhead reducer: reputation

One overhead line you can shrink dramatically is customer acquisition — and reviews do exactly that. A strong review profile brings in leads at near-zero marginal cost, lowering the overhead each job has to recover. Tailwind automates the review engine that makes your marketing cheaper — see how it works.

Stop being busy and broke. See how Tailwind works.