Overhead Recovery Rate Calculator

This calculator answers a question that sits underneath every price a service business quotes: how much of the rent, insurance, vehicles, admin wages, software and compliance does each billable hour have to carry? Overheads get paid whether or not you win work, so they have to be recovered from the hours you do sell, and the arithmetic is unforgiving. You enter your annual fixed overheads split across seven standard categories, the number of genuinely productive staff, the contracted hours each of them works in a year, and a realistic utilisation rate covering annual leave, public holidays, sick leave, travel, quoting, rework and training. The calculator returns your total recoverable hours and the dollars of overhead every one of them must carry. It then does the part that matters most: a sensitivity table showing what happens when utilisation is lower than you assumed. That single assumption is the one owners consistently get wrong, usually by ten or fifteen percentage points, and because overheads are fixed while hours are not, a small overestimate translates into a large hole. The rate produced here feeds directly into your charge-out rate and into per-job overhead allocation in our job costing tool. Figures are indicative management estimates for planning, not accounting records.

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Why Overhead Recovery Decides Whether A Business Works

A service business has two kinds of cost. There is the cost caused by doing a particular job, being the materials, the subcontractors, the plant hire and the wages of whoever was on site. And there is the cost of simply existing: the rent, the insurance, the vehicles sitting in the yard, the person answering the phone, the software subscriptions, the accountant, the compliance. The first kind you can see clearly in a job. The second kind arrives every month regardless of whether you invoiced anything at all.

Those fixed costs have to be paid out of the work you do win, and the only mechanism you have for collecting them is the hourly rate you charge. The overhead recovery rate is simply the arithmetic of that: total the fixed costs, divide by the hours you can realistically sell, and you have the amount every single billable hour must contribute before the business has broken even. It is not a target or a nice-to-have. It is a floor.

The Divisor Is Where This Calculation Goes Wrong

Totalling overheads is straightforward. Most owners can do it from their profit and loss in ten minutes. The number that destroys the calculation is the one underneath: how many hours can you actually bill?

Start with the gross. Three productive people on a standard 40 hour week for 52 weeks gives 6,240 contracted hours. That figure is real in the sense that you pay for it, and completely unreal as a billing target. Four weeks of annual leave and eleven public holidays remove roughly 15% of it before anything else happens. Then comes sick leave, travel between sites, time spent quoting work you will not win, rework on jobs that did not go right first time, training, vehicle and tool maintenance, health and safety documentation, ordering materials, and the ordinary daily friction of running jobs.

By the time all of that is honestly accounted for, most New Zealand trades and service businesses are billing somewhere between 55% and 75% of contracted hours. We deliberately do not publish a standard figure, because none exists and any number presented as one should be treated with suspicion. What we can say is that if you are assuming 85% or 90%, your timesheets almost certainly disagree with you.

Worked Example: $114,000 Across 4,056 Hours

Take the defaults on this page, which describe a small New Zealand trades business with three people on the tools. The annual overheads are $24,000 of rent, $9,500 of insurance, $18,000 of vehicle costs, $45,000 of administration wages, $6,000 of software and phones, $4,500 of accounting and compliance, and $7,000 of other costs. That totals $114,000.

Three productive staff at 2,080 contracted hours each gives 6,240 hours of gross capacity. At 65% utilisation, 2,184 of those hours are non-chargeable and 4,056 hours remain to be billed.

The recovery rate is $114,000 divided by 4,056, which is $28.11 per chargeable hour. Every hour you invoice has to carry $28.11 of overhead before it contributes a cent of profit, and that is on top of what the person doing the work costs you in wages.

That last point is where the number becomes uncomfortable. If your tradesperson costs $38 an hour fully loaded, the break-even charge-out rate is $38.00 plus $28.11, which is $66.11. Charging $75 an hour is not a $37 profit over the $38 wage. It is $8.89 of profit, or about 12% of the rate. To earn a 20% margin the rate needs to be $82.63.

The Sensitivity Table Is The Point Of This Page

Overheads are fixed. Chargeable hours are not. That asymmetry is what makes utilisation so dangerous as an assumption, and it is why the table above exists.

Drop utilisation from 65% to 60% and you lose 312 chargeable hours across the year. The $114,000 of overhead has not changed, so the rate required to recover it rises from $28.11 to $30.45. If you carry on charging on the basis of $28.11 while only delivering 3,744 hours, you collect $105,230.77 against a $114,000 bill. The $8,769.23 difference does not disappear. It comes out of profit, quietly, over twelve months, and shows up as a year that felt busy but did not pay.

Fall to 55% and the gap widens to $17,538.46. For most small trades businesses that is the entire annual profit. Nothing about the work changed, nobody quoted badly, and no client underpaid. The only thing that moved was an assumption in a spreadsheet.

Which Overheads To Attack First

The ranked table above sorts your overheads by size, because that is where the leverage is. In the default example, administration wages at $45,000 are 39.5% of the total on their own, and vehicles at $18,000 are another 15.8%. Between them they are more than half the overhead bill and therefore more than half the recovery rate.

That does not mean cut them. An administrator who frees up fifteen hours a week of an owner's time may be paying for themselves several times over, and cutting the role would simply move the work back onto someone whose hours are worth more. The useful question is not which overheads are largest but which ones are buying you chargeable capacity. Spend that increases utilisation reduces the recovery rate even as it increases the overhead total, because it grows the divisor faster than the numerator. Spend that does neither is just cost.

What This Rate Is Not

The recovery rate is not your charge-out rate and it is not a margin. It is the middle of three layers. Underneath it sits the fully loaded wage cost of whoever does the work, which our True Cost of Employee Calculator builds properly. On top of it sits whatever profit you intend to make. Leave any layer out and the rate is wrong.

It also assumes your overheads are genuinely fixed across the range you are modelling. If growing from three staff to five would mean a bigger yard, another vehicle and a second administrator, then the overhead total is not fixed at that scale and the rate needs recalculating for the new structure rather than assuming the current one stretches.

Finally, this is an average across your team. If your crew mix is very uneven, with one highly paid specialist and several juniors, an average rate will over-recover on some hours and under-recover on others. That is usually acceptable for a small business. Once the spread gets wide enough to distort your pricing, it is worth calculating separate rates by role.

Related NZ Business and Trades Calculators

• Job Costing Calculator: apply the rate from this page to a single job and see the margin it actually made.
• Tradie Charge-Out Rate Calculator: build the full hourly rate from wage cost, this overhead rate and your target profit.
• Utilisation Rate Calculator: measure the utilisation percentage this calculation depends on, rather than guessing it.
• Break-Even Calculator: the same fixed cost question answered in revenue terms rather than per hour.
• True Cost of Employee Calculator: the fully loaded wage cost that sits underneath the recovery rate.
• How Much Should I Pay Myself?: the background to this calculation.
• How to Price a Job: the background to this calculation.
• Should I Delegate or Do It Myself?: the background to this calculation.