Pricing6 min read
How to work out your overhead recovery rate
The cost per productive hour that every job has to carry before it makes a cent of profit, and how to calculate it from your own monthly figures.
- Updated
- 18 Oct 2026
In short
If you read nothing else.
- 01
Overhead is everything you pay for whether or not a job is running.
- 02
Divide monthly overhead by the hours that actually reach a job, not by paid hours.
- 03
Add the result to labour cost per hour before you add any margin.
In this guide4 sections +
A job's direct costs are easy to see: materials on the supplier slip, hours on the timesheet. What is harder to see is the bakkie finance, the insurance, the office, the phone contracts and the admin wages that keep the business able to do any job at all. That is overhead, and if your price does not recover it, the business is paying for the work.
Step 1: list a normal month of fixed costs
- Rent for a yard, workshop or office
- Vehicle finance, insurance, licences and tracking
- Wages for anyone not on the tools: admin, quoting, management
- Business insurance and professional fees
- Phones, data, software subscriptions and accounting
- Tool replacement and repairs
- Your own salary, if you do not charge your own hours to jobs
Use twelve months of figures and divide by twelve, so a once-a-year insurance premium or licence renewal is spread properly.
Step 2: count the hours that reach a job
A full-time person is paid for roughly 173 hours a month (40 hours × 52 weeks ÷ 12). Not all of those hours end up on a job. Travel between sites, waiting for materials, rework, training, leave and public holidays all eat into them. Many small contractors find that 60% to 75% of paid hours are billable once they actually measure it.
The calculation
Productive hours= people on the tools × paid hours × billable share
3 × 173 × 70%= 363 hours a month
Step 3: divide
The calculation
Overhead recovery rate= monthly overhead ÷ productive hours
R47,000 ÷ 363= R129 per productive hour
That R129 sits on top of what an hour of labour costs you. If labour costs R220 an hour, every productive hour costs the business R349 before any profit. A charge-out rate of R350 is break-even, not a healthy rate.
Using it in a quote
- 01Cost the materials, including waste and offcuts.
- 02Estimate labour hours and multiply by labour cost per hour.
- 03Multiply the same hours by your overhead recovery rate.
- 04Add travel and any subcontractors or plant hire.
- 05Divide the total by (1 − your target margin).
General information, not advice. This guide explains the general position for South African businesses. It is not tax, legal or accounting advice. For your specific situation, speak to your accountant, registered tax practitioner or attorney.