The Overhead Recovery Crisis: Why Most HVAC Contractors Are Billing at a Loss Without Knowing It

Here is the most common financial story in North Texas HVAC right now: the owner is doing more revenue than ever, the trucks are full, callbacks are up a little but manageable, and yet at the end of every month the checking account is not where it should be. There is always something eating the margin. Equipment cost increases, fuel, a tech who left and had to be replaced. It feels like bad luck or bad timing.

Most of the time it is not bad luck. It is overhead that was never properly priced into the jobs.

Overhead recovery is one of the least-discussed and most consequential financial levers in a service business. When it is wrong, every single job you complete is subsidized by your own profit margin. You are working harder to make less, and the harder you work, the worse it gets because you are scaling the deficit.

What Overhead Actually Is (And What Most Shops Miss)

Overhead is every cost required to run your business that is not directly tied to a specific job. It is not materials. It is not the direct labor hours your tech spends on a call. It is everything else — and in most HVAC operations, that everything else adds up to 35–50% of revenue.

The reason most contractors underprice overhead is simple: these costs are invisible at the job level. You see the invoice for the capacitor. You know what you paid the tech for the hour. What you do not automatically see is what fraction of your truck payment, your liability insurance, your dispatcher's salary, and your ServiceTitan subscription belongs to that specific call.

So those costs get lumped into a vague mental category called “overhead” and priced in as a rough percentage that was set years ago and never revisited. Meanwhile, every one of those costs has increased significantly since 2021.

The Five Overhead Categories Most Shops Underprice

Add those five categories together and you are looking at a true overhead burden of 32–45% of revenue for a typical residential HVAC operation. Most contractors pricing with a 15–20% overhead factor are running a structural deficit on every call.

The Real Cost of a Technician: A Worked Example

Let's walk through what a technician actually costs versus what most shops think they cost. Take a mid-level tech in the DFW market at $28/hour:

A technician you think costs $28/hour actually costs $53.88/hour to put on a job. If your service rate is not built around that number — plus profit margin — you are losing money on every call, even when the job goes perfectly.

Most DFW contractors we speak with have a mental model of their tech cost that is $15–$20/hour lower than reality. That gap, multiplied across every billable hour in the year, is where the missing margin goes.

Why This Problem Gets Worse When Business Is Good

Here is the counterintuitive part: overhead underpricing gets more damaging as volume increases. When you are busy, you are completing more jobs, each of which is slightly underpriced. You are also adding overhead — more trucks, more admin support, more software seats — without necessarily repricing to reflect it.

A contractor doing $2M in revenue with a 5% overhead gap is leaving $100,000 on the table annually. A contractor doing $5M with the same gap is leaving $250,000. The more successful the business, the bigger the structural leak.

This is also why many contractors hit a revenue ceiling where they cannot seem to convert growth into profitability. At $3M they feel squeezed. At $4M they feel more squeezed. The problem is not growth — it is that the pricing model never caught up with the cost structure.

How to Calculate Your Actual Overhead Recovery Rate

The Flat-Rate Trap

Flat-rate pricing books — whether from a national provider like Callahan-Roach or a custom internal book — are only as accurate as the overhead inputs used to build them. If your flat-rate book was calibrated in 2022 and your overhead has increased by 18% since then (a conservative estimate given inflation, wage increases, and insurance cost growth), every job priced from that book is underpriced by 18%.

The discipline that separates high-margin shops from average shops is not using flat-rate pricing — it is updating it annually. Specifically: recalculate your overhead rate each January, adjust your flat rates accordingly, and communicate the change to your team before the spring season.

Shops that do this consistently maintain gross margins of 55–65% on service work. Shops that let their book sit for 2–3 years without recalibration typically land at 42–50% — a 10–15 point margin gap that compounds dramatically at volume.

What to Do With Existing Customers When You Reprice

This is the question every contractor asks when they realize they have been undercharging: what do I do about the customers who are used to my old pricing?

The honest answer: most residential customers are less price-sensitive than contractors fear. A $15–$25 increase in a service call rate — framed as “our rates reflect current technician and fuel costs” — results in minimal pushback in the DFW market, where homeowners are accustomed to price movement across all service categories.

For maintenance agreement customers, the cleanest approach is to grandfather them at their current rate for the remainder of their agreement term and reprice at renewal. Notify them 60 days in advance with a clear explanation. Churn on well-served agreement customers who receive a price increase notice is typically 4–8% — far lower than the margin improvement from correcting the pricing.

The Monitoring Angle: Why This Is Harder to See Without Data

One reason overhead underpricing persists is that it is invisible at the job level. ServiceTitan, Housecall Pro, and most FSM platforms show you revenue per job and materials cost per job. Very few show you overhead allocation per job, or flag when a job type is systematically underperforming on margin.

That is an operational monitoring problem. The shops that catch overhead drift early are the ones with someone regularly reviewing job-level margin data — not just total P&L — and correlating it against overhead benchmarks. When a job category's margin starts compressing, that is usually the first signal that overhead has drifted past the pricing model.

By the time it shows up clearly on the monthly P&L, the problem has typically been accumulating for 4–6 months.