Introduction
You already know what your jobs cost and what a productive field hour costs. This Guide answers a different question. How much of your company’s annual overhead does each unit of sold work need to carry? And how do you build that in without charging for the same cost twice? Overhead recovery is a cost-recovery requirement. It is not a price, and it is not a profit target. It sits between your job costing and your pricing decision. This is the third Resource in the pricing-foundation cluster. It assumes you have already worked through what a landscape job costs and what a productive field hour costs.
Key Concepts
Overhead recovery only works when every dollar lives in exactly one place. Before you build a recovery rate, get the vocabulary straight, because the double-counting risk hides in loose definitions.
Directly traceable job cost
Costs you can tie to a specific job, such as materials, subcontractors, and job-specific equipment or labor
Productive field-labor cost
The total employer labor cost per productive/job-costed field hour, solved in the productive field hour Resource
Equipment economics
Overhead
The annual pool of costs to run the company that no single job carries, such as office staff, managers, facilities, software, insurance, and non-job vehicles
The requirement to spread that annual pool across sold work, expressed as a rate
Selling price, markup, margin, and profit are downstream decisions. None of them belong in the overhead pool. The one rule that prevents double counting: classify each cost once, either as direct job cost or a job-level rate, or as overhead, and apply that classification consistently.
Some items can sit legitimately on either side, but only one side. This table shows the choice, not a required answer.
Field supervision
If charged to jobs
If a company-wide role
Pick one, never both
In an equipment rate
In overhead
Pick one, never both
Shop and yard expense
Not tied to one job
In the overhead pool
Classify once
Small tools
In the field-hour cost or a rate
In overhead
Classify once
Step-by-Step Framework
Overhead recovery is genuinely sequential. Work these five steps in order.
Build the annual overhead pool.
Start from your last full year’s profit and loss statement. Add up the costs of running the company that no individual job carries. Use a full year so seasonality does not distort the figure.
Remove costs already recovered elsewhere.
Choose the recovery base.
Decide what you will spread the pool across. The right base depends on how your work consumes overhead, so weigh the tradeoffs rather than copying one method.
Productive labor hours
Calculate the recovery rate.
Divide the overhead pool needing recovery by the base units for the same year and the same population.
`Overhead recovery rate = overhead pool needing recovery ÷ base units`
The units follow the base: dollars per productive labor hour, overhead cost per labor dollar, overhead cost per direct-cost dollar, or overhead as a percent of revenue. Utilization drives the per-hour figure. If billable hours fall while the pool holds, the rate per hour has to rise to recover the same dollars.
Reconcile expected recovery to actual overhead.
At year end, check that the method recovered what you spent.
`Expected recovery = recovery rate × actual base volume`
`Under- or over-recovery = expected recovery − actual overhead pool`
A shortfall is under-recovery, which quietly consumes net profit. A surplus is over-recovery, which can make a sound service look unattractive.
Practical Notes
A worked example makes the mechanics concrete. These numbers are illustrative, not a benchmark. Suppose the overhead pool needing recovery is $600,000 and you plan for 30,000 productive field hours. The recovery rate is $20 per productive hour. If you actually deliver 28,000 hours, expected recovery is $560,000, so you under-recover by $40,000 against the $600,000 pool. That gap is the cost of planning for hours you did not sell.
A few disciplines keep the method honest:
- Use realistic full-year billable hours, not peak-season capacity, or the per-hour rate will look lower than it is.
- Keep numerator and denominator on the same period. Annual overhead dollars divided by monthly hours is a basis mismatch.
- Classify each cost once and document where it landed, so next year’s review is auditable.
- Keep profit, markup, and margin out of the pool. Recovery covers cost only.
If a material overhead figure is unknown, the pool and the rate are incomplete. Mark that input as missing and do not treat a blank as zero. A recovery rate built on missing data reads as precise when it is not.
Next Actions
Put the method to work on your own numbers:
- Pull last full year’s profit and loss statement.
- Build the overhead pool, then remove every cost already recovered in a rate or job cost.
- Pick one base to start, and compute the recovery rate.
- Run the reconciliation to see whether the method recovers the full pool.
- Revisit the rate quarterly, and whenever your service mix or overhead shifts.
The recovery rate is an input, not a price. It feeds the selling-price decision covered in the pricing Resource, When Should You Raise Prices and By How Much? Keep the two decisions separate so cost recovery stays distinct from pricing.
Conclusion
Done well, overhead recovery gives you a company-specific rate that reconciles to your actual overhead and does not charge any cost twice. That rate becomes a trustworthy input to pricing, instead of a borrowed percentage that may fit another company’s mix but not yours. If different services consume overhead differently, test the recovery method against your actual mix before you rely on a single rate. When you want a second set of eyes on your pool, base, and reconciliation, request a consultation with Profit in Bloom.