Overhead Recovery
What is Overhead Recovery?
Overhead recovery is the practice of building each job's share of fixed indirect costs — rent, insurance, office staff, software, vehicle ownership, and the like — into its price so those costs are paid back out of revenue. Unlike direct job costs, overhead does not rise and fall with any single job, so it has to be spread across the work you expect to bill. A common method computes an overhead recovery rate = total overhead ÷ total billable hours, giving an overhead cost per hour you fold into your rate alongside labor and materials. Price below it and the work technically sells while the business slowly loses money.
Direct costs are easy to see on a job: the parts, the technician’s wages for those hours. Overhead is the cost that exists whether or not the phone rings — and it is the cost operators most often forget to charge for. If your rate covers labor and materials but not your share of rent, insurance, and admin, you can stay busy and still come up short at year end.
Recovery works by allocation. You total the overhead the business carries over a period, then spread it across the hours (or jobs) you realistically expect to bill, producing a per-hour or per-job amount you add into pricing. The allocation base matters: spread overhead across hours you never actually bill and you will under-recover, because the real denominator is your billable capacity, not your theoretical one.
That is why overhead recovery and utilization move together — fewer billable hours mean each one must carry more overhead. Set the per-hour figure to fold into your rate with the overhead recovery rate calculator.