Lesson 2 of 7 · The Profitable HVAC Shop
What It Costs to Open the Doors Every Month
Find the quiet, recurring costs your prices must cover before the first job of the month can make money.
- Free
- No signup
- Work at your pace
| Who it is for | Owners, Stage 1–4 (one to ten technicians). Useful for a new office manager building the first expense list. |
|---|---|
| Time | 12 minutes to read, 45 minutes to do properly |
| You will need | Twelve months of bank and credit card statements, and your last two payroll runs |
| Tool | HVAC Overhead Cost Calculator |
The painful truth
Almost every owner who has never done this exercise underestimates their overhead, and they do not underestimate it by a little. The costs you forget are the ones that never arrive as a single, memorable invoice.
You remember rent. You do not remember that card processing quietly takes a few hundred dollars a month off the top before the money ever reaches you.
Why this happens
Overhead is not one bill. It is forty small ones, spread across two bank accounts, three credit cards, one auto-debit nobody remembers setting up, and a payroll system that reports wages but not the employer taxes sitting on top of them.
Owners build the list from memory. Memory retrieves painful items such as rent, truck payments, and payroll while skipping costs that are small, automatic, or invisible. Small, automatic, and invisible describes a surprising share of what it costs to run a company.
This matters because every hour your technicians sell has to carry a share of this number. Underestimate overhead and every price you set is too low, in a way that is completely invisible until the year ends.
The core idea: overhead is what the phone not ringing costs you
A cost is overhead if you would still pay it during a week with zero calls. Rent does not stop. Insurance does not stop. Your office person still gets paid. The van payment is still due.
A cost is a direct job cost if it only exists because a specific job existed: the condenser, the capacitor, the permit, the subcontractor, the technician’s loaded hours on that job.
Some costs sit on the line and it is a judgment call. Fuel is the classic one: some shops treat it as overhead, some allocate it to jobs. Technician small tools and consumables are another. There is no universally correct answer, but there is one rule that is not negotiable:
Pick a treatment, write it down, and count every cost exactly once. Double-counting a cost in both direct cost and overhead will make your pricing look worse than it is; missing it entirely will make it look better. Both lead to bad decisions.
Worked example: Ridgeline Heating & Air
Ridgeline is fictional. Every figure is illustrative and chosen to make the arithmetic clear. These are not averages or targets.
Dale sat down and listed his monthly overhead from memory. Here is what he wrote.
| What Dale remembered | Per month |
|---|---|
| His own wage | $7,100 |
| Office and CSR wages | $2,600 |
| Rent and utilities | $1,700 |
| Vehicle payments | $1,200 |
| Fuel | $1,300 |
| Software and subscriptions | $400 |
| Phones and internet | $300 |
| Advertising | $400 |
| Dale’s total | $15,000 |
Then he went through twelve months of statements line by line. Here is what the statements found that his memory did not.
| What the statements found | Per month |
|---|---|
| Employer payroll taxes on his own and office wages | $850 |
| General liability and umbrella insurance | $800 |
| Commercial vehicle insurance | $700 |
| Card and ACH processing fees | $400 |
| Uniforms, small tools, and consumables never charged to a job | $150 |
| Training, certification, license and permit renewals | $100 |
| Missed total | $3,000 |
| True monthly overhead | $18,000 |
|---|---|
| True annual overhead | $216,000 |
| Per technician (4 technicians) | $4,500 per month · $54,000 per year |
| Per billable hour (using 5,600 billable hours; Lesson 4 builds this figure) | $38.57 |
Dale’s estimate was $3,000 a month light, one dollar in six of the $18,000 it actually costs to open the doors. The gap existed because those costs arrived as many small automatic debits rather than one bill with his name on it.
That $38.57 is the number that matters. Every single billable hour Ridgeline sells has to carry $38.57 of overhead before it covers the technician doing the work and before a dollar of profit exists. Dale had been pricing as though that number was around $30.
What changes the result
- Whether the owner is on payroll. If Dale removed his wage and the related employer payroll taxes from this statement and took only distributions, reported overhead would fall sharply and every price built on it would be structurally too low. His labor is still a cost.
- Seasonality. Advertising, overtime-driven office hours, and temporary help spike in shoulder season. Use a full twelve months and divide by twelve. One month is a snapshot, not a rate.
- The technician count you divide by. Divide by productive technicians, meaning people who generate billable hours. Do not include an office manager. Do not include yourself unless you actually run billable calls, and if you do, count the fraction that is real.
- Growth you have already committed to. If you have signed a bigger lease or ordered a van that arrives next month, that overhead is real even though it has not hit a statement yet.
- Where you put fuel and small tools. Either treatment can be defended. Inconsistency cannot.
Common mistakes
- Building the list from memory. Memory misses the automatic debits. Use statements.
- Forgetting employer payroll taxes. Wages appear on the payroll report. The employer’s share of taxes is on top of that and is genuinely easy to miss.
- Leaving out card and financing fees. They are deducted before the deposit lands, so they never look like a bill.
- Treating an annual payment as though it were not a monthly cost. A $9,600 insurance premium is $800 a month whether or not you pay it that way.
- Dividing by every employee instead of every productive technician. This makes overhead per technician look smaller and your pricing look safer than it is.
- Doing it once. Overhead moves. Insurance renews, software adds seats, a van gets financed. Re-run this quarterly, or at minimum when anything structural changes.
Do this now
- Export or print twelve months of every bank and credit card statement the business uses.
- Go line by line. Every recurring charge goes into one of three buckets: overhead, direct job cost, or personal, and if it is personal, that is a separate conversation with your accountant.
- Add employer payroll taxes for yourself and any non-field staff.
- Add a realistic wage for yourself if you are not currently on payroll. Ask what you would have to pay someone to do what you do.
- Total it, divide by twelve, and enter the categories into the HVAC Overhead Cost Calculator.
- Write down three numbers: monthly overhead, overhead per productive technician, and overhead per billable hour. You will use all three in Lesson 5.
- Put a recurring reminder in your calendar to redo this every quarter. It takes twenty minutes the second time.
Check yourself
- Your phone does not ring for an entire week. Walk down your expense list and mark everything you would still pay. That is your overhead: did anything surprise you?
- You allocate overhead across five technicians, but one of them is in training and bills almost nothing. What does that do to your overhead per billable hour, and which direction does it push your prices?
- Why does leaving yourself off payroll make every price you quote structurally too low?
- You pay a $9,600 insurance premium once a year. How should it appear in a monthly overhead figure, and why?
- You currently charge fuel to jobs. Where must fuel not appear, and what happens to your pricing if it appears in both places?
Check your answers
- The marked items are overhead if they continue without calls. The useful part of the exercise is finding automatic, annual, and owner-related costs that memory leaves out.
- The true overhead per billable hour rises. Dividing by five people hides the trainee’s low output and pushes prices down. Divide annual overhead by realistic total billable hours instead.
- Your replacement cost still exists. If the price does not cover a market wage for the owner’s work, the company cannot hire someone to replace that work without losing money.
- Record $800 per month. Dividing $9,600 by twelve puts the cost into every month that benefits from the coverage instead of making one month look unusually bad.
- Keep fuel out of overhead if it is already assigned to jobs. Putting it in both places double-counts the cost and makes the resulting price too high.
Your tool
The HVAC Overhead Cost Calculator turns your recurring expenses into monthly overhead, annual overhead, overhead per technician, and overhead per billable hour. It is free, requires no signup, and nothing you type is stored.
Key takeaway
Overhead is everything you would still pay during a week with no calls. Build it from statements, not memory, include your own wage, and convert it to a per-billable-hour figure, because that is the form in which it has to be recovered from customers.
Next lesson
You now know what the business costs. Next, calculate what a technician costs beyond the wage.
Lesson 3: What a Technician Really Costs You →
Sources and assumptions
The overhead-versus-direct-cost distinction used here follows standard small-business accounting practice; how a specific expense should be classified in your books is a question for your bookkeeper or accountant. General guidance on business expenses is published by the IRS in Publication 334, Tax Guide for Small Business, and general small-business cost guidance by the U.S. Small Business Administration. Employer payroll tax rates and workers’ compensation rates vary by state, wage level, and classification code.
All Ridgeline figures are illustrative assumptions created for this lesson. The expense categories shown are a starting point, not a chart of accounts.
Disclaimer
Educational content only. Not accounting, tax, legal, or financial advice.
Editorial status
Published by ClimaCall. Independent technical review is pending. No outside reviewer is attributed to this lesson.