Engine Overhaul Running Costs: $87K/Month, 14 Month BE

Engine Overhaul Running Costs

Running an Engine Overhaul business requires significant fixed overhead and high-skill payroll, driving average monthly running costs to approximately $87,000–$95,000 in the first year (2026) This estimate includes $13,950 in fixed operating expenses and $49,167 in base payroll for six full-time equivalent (FTE) staff, before accounting for payroll burden Your gross margin is high at 903%, but the high operational expenditure means you must maintain high utilization rates to cover costs The business model is capital-intensive, requiring a minimum cash buffer of $807,000 to fund the initial negative cash flow and cover the 14 months needed to reach break-even (February 2027) You must closely monitor the 97% Cost of Goods Sold (COGS) to ensure profitability, especially when dealing with high-value jobs like Classic Inline 6 Restores This guide details the seven core monthly expenses you must track to achieve the projected $266,000 EBITDA by Year 2

7 Operational Expenses to Run Engine Overhaul

#	Operating Expense	Expense Category	Description	Min Monthly Amount	Max Monthly Amount
1	Workshop Lease	Fixed Overhead	The primary fixed cost is the $10,000 monthly lease for the specialized workshop space, which must accommodate the Engine Machining Center and Clean Room.	$10,000	$10,000
2	Technical Payroll	Fixed Labor	Base technician payroll is the largest expense at $49,167 per month in 2026, covering 40 FTE technical staff including Lead ASE Technicians and the Machinist Specialist.	$49,167	$49,167
3	Parts & Materials	Variable COGS	Direct materials average $7,602 monthly, driven by high-cost items like Vintage Parts Sourcing ($2,800 per Classic Restore) and Performance Parts Kits ($1,495 per V8 Build).	$7,602	$7,602
4	Utilities/Overhead	Fixed Overhead	Essential operational fixed costs include $1,500 monthly for utilities (powering heavy machinery) plus $250 for the security system, totaling $1,750 per month.	$1,750	$1,750
5	S&M Variable	Variable SG&A	Variable selling expenses average $3,917 monthly in 2026 (50% of revenue), covering 30% in sales commissions and 20% for project-based marketing.	$3,917	$3,917
6	Software/Tools	Fixed SG&A	Specialized diagnostic software licenses and administrative tools cost $700 monthly, essential for modern engine management and quality control.	$700	$700
7	Insurance/Compliance	Fixed Overhead	Mandatory fixed costs include $800 monthly for business insurance plus $300 for professional certifications, totaling $1,100 to mitigate liability and maintain standards.	$1,100	$1,100
	Total	All Operating Expenses		$74,236	$74,236

What is the total monthly running cost budget required to sustain Engine Overhaul operations for the first year?

The total monthly running cost budget for Engine Overhaul operations requires covering a total cash burn rate that demands achieving a minimum monthly revenue target of $78,333 to stay afloat. This calculation hinges on accurately determining the true, fully loaded cost of the $49,167 base salary before operational overhead is added.

Payroll Burden Impact

Base salary for technical roles is pegged at $49,167 annually.
Employer burden for taxes and benefits must be added to this base number.
Calculate the true monthly payroll expense by adding burden to the base salary.
If onboarding takes 14+ days, churn risk rises.

Sustaining Monthly Cash Flow

You need to hit $78,333 monthly revenue just to break even on average costs, so every decision matters. Have You Considered The Best Strategies To Launch Engine Overhaul Successfully? This target covers fixed overhead, variable costs, and the fully burdened payroll calculation we just discussed.

Minimum monthly revenue target required to cover all costs is $78,333.
Fixed overhead and variable costs must be subtracted from this revenue target.
Focus on maximizing project throughput to hit this number consistently.
Defintely track gross margin per overhaul project closely.

Which cost categories represent the largest recurring monthly expenses and how can they be optimized?

Payroll is defintely the largest recurring expense at $49,167 monthly, but optimizing the 97% COGS structure, especially parts sourcing, offers the fastest path to better unit economics for Engine Overhaul.

Labor Cost Control

Base payroll of $49,167 dwarfs the $13,950 in fixed overhead costs.
We must track utilization for the 40 FTE technical staff closely for efficiency.
If onboarding takes 14+ days, churn risk rises among new hires.
Labor efficiency is your primary lever against high fixed overhead.

COGS Levers

The 97% COGS structure means every dollar saved here drops straight to the bottom line.
Vintage Parts Sourcing alone costs $2,000 per Classic Restore project.
Negotiate supplier terms now to cut that $2,000 component cost.
Review the current unit economics to see Is Engine Overhaul Currently Achieving Consistent Profitability?

How much working capital is necessary to cover operating costs until the business reaches positive cash flow?

The Engine Overhaul needs a minimum cash balance of $807,000 to cover operational losses until reaching positive cash flow, projected for February 2027. This calculation factors in the initial $330,000 in capital expenditures needed for core machinery and setup. You must manage the monthly burn rate aggressively over these 14 months to stay within this required cash buffer. Honestly, getting the runway right is defintely the hardest part right now.

Covering the Burn Rate

The $807,000 minimum cash balance must sustain the business for 14 months until profitability.
This runway calculation assumes a steady, predictable monthly operating loss (burn rate).
If the sales cycle extends beyond February 2027, the required capital injection increases proportionally.
Watch customer onboarding times closely; delays directly increase the cash needed to survive.

Upfront Costs and Focus

Initial CAPEX totals $330,000 for the Machining Center, Clean Room, and Diagnostics tools.
This investment is fixed and must be secured before operations begin generating meaningful revenue.
To control the burn, track What Is The Most Critical Metric To Measure The Success Of Engine Overhaul?
Every day saved on the path to break-even reduces the total working capital requirement.

If revenue falls 20% below forecast, how will we cover the fixed monthly expenses?

If revenue for Engine Overhaul drops 20% below plan, covering fixed costs requires immediate action on the $49,167 base payroll and securing backup funding for the projected $131,000 Year 1 EBITDA shortfall; we need to defintely know which overhead components are truly fixed.

Pinpoint Unavoidable Costs

The monthly lease commitment is fixed at $10,000.
Insurance obligations total $800 per month.
These two items mandate $10,800 coverage regardless of job volume.
Payroll ($49,167 base) is the primary variable cost lever to pull.

Closing the EBITDA Gap

The Year 1 projected negative EBITDA is $131,000.
A 20% revenue dip immediately widens this gap substantially.
Contingency planning must secure funds to cover the $10,800 non-negotiable overhead.
Model scenarios showing the exact payroll reduction needed to offset the shortfall.

Key Takeaways

The total average monthly running cost required to sustain the Engine Overhaul shop operations in the first year is estimated to be between $87,000 and $95,000.
Specialized technician payroll ($49,167 base) and fixed overhead ($13,950) form the foundation of the high operational expenditure structure driving monthly burn.
Due to initial negative cash flow, a substantial minimum cash buffer of $807,000 is necessary to fund operations until the projected 14-month break-even point in February 2027.
Despite a high 903% gross margin, the 97% Cost of Goods Sold (COGS) structure necessitates maintaining high utilization rates to cover significant fixed expenses.

Running Cost 1 : Workshop Lease

Lease is Primary Fixed Cost

The $10,000 monthly workshop lease is your main fixed overhead commitment. This space is non-negotiable because it must house the critical Engine Machining Center and the required Clean Room for quality control. Missing this payment directly impacts operational capacity. That rent must be covered before anyone sees a paycheck.

Facility Inputs

This $10,000 monthly lease covers the specialized facility needed for precision work. You need signed quotes for the square footage required to fit the heavy machinery and the controlled environment. It’s a foundational fixed cost, sitting just below technician payroll in the initial expense stack.

Covers specialized machining footprint.
Fixed cost, paid regardless of jobs.
Essential for quality compliance.

Lease Management Tactics

Reducing this lease cost requires smart negotiation or phasing your buildout. Don't over-spec the initial footprint; you might only need 70% of the final planned space for the first six months. Avoid signing leases longer than three years defintely, as flexibility matters more than deep discounts right now.

Negotiate phased occupancy terms.
Avoid long-term commitments early.
Ensure utilities are separate line items.

Break-Even Impact

Since this is your primary fixed cost, achieving break-even depends heavily on covering this $10,000 monthly obligation quickly. If your average overhaul job generates $8,000 in gross profit (before overhead), you need at least 1.25 jobs per month just to cover the rent, not counting payroll or materials.

Running Cost 2 : Technical Payroll

Payroll Magnitude

Technical payroll hits $49,167 monthly in 2026, making it your biggest operational outlay. This covers 40 full-time equivalent (FTE) staff executing the core overhaul work, setting the baseline for gross margin analysis.

Cost Inputs

This $49,167 estimate represents the base compensation for the 40 technical employees required to meet 2026 volume targets. Inputs needed are the exact blended hourly rate for Lead ASE Technicians and the Machinist Specialist, plus employer burden (taxes, benefits). This cost scales directly with service demand.

Headcount: 40 FTE technicians.
Key roles included.
Employer burden matters.

Labor Control

Managing this large fixed labor cost requires strict utilization tracking. Avoid hiring too early; hire only when utilization consistently exceeds 85% capacity for the existing team. Cross-train technicians to reduce reliance on specialized roles like the Machinist Specialist for routine tasks. Defintely review benefits packages annually for savings opportunities.

Track technician utilization rates.
Phase hiring based on demand.
Cross-train staff skills.

Breakeven Link

Since payroll is $49.2k fixed overhead, every hour billed below standard efficiency directly erodes profit. You must model the required revenue per technician to cover this, ensuring your average overhaul price supports the 40-person team structure.

Running Cost 3 : Parts and Materials COGS

Parts Cost Drivers

Direct materials, or Parts and Materials COGS, average $7,602 monthly for your engine overhaul service. This cost is heavily weighted by specialized component acquisition, not general consumables, so tracking these major line items is critical for profitability.

Material Cost Breakdown

This $7,602 covers all physical inputs needed for the rebuilds. The biggest material sinks are tied to specific job types. A Classic Restore requires an average of $2,800 in Vintage Parts Sourcing alone. Likewise, a V8 Build demands $1,495 just for Performance Parts Kits.

$7,602 average monthly spend.
$2,800 cost per Classic Restore sourcing.
$1,495 cost per V8 Build kit.

Managing Material Spend

Since sourcing drives material cost, focus negotiations on those high-ticket items. Standardize V8 kits where possible to gain volume discounts; this is defintely achievable. For vintage sourcing, establish preferred vendor relationships to reduce premium rush fees associated with hard-to-find components.

Negotiate volume pricing on kits.
Vet suppliers for vintage parts access.
Standardize common rebuild components.

COGS Leverage Point

The $7,602 monthly average masks serious volatility based on job mix. A single Classic Restore job consumes about 37% of that average budget just in specialized sourcing costs. You must manage the project mix closely to keep material expenses predictable month-to-month.

Running Cost 4 : Utilities and Shop Overhead

Shop Fixed Utilities

Shop utilities and security total a fixed $1,750 monthly, which is non-negotiable operating spend supporting your heavy machinery. This cost must be covered before any variable job costs are accounted for. Keep an eye on power consumption during peak machining hours.

Cost Breakdown

This $1,750 covers essential shop infrastructure. Utilities, specifically the $1,500 for powering heavy machinery like the Engine Machining Center, are critical inputs. Add $250 for the security system. This cost is part of your overall fixed overhead, separate from the $10,000 workshop lease.

Utilities: $1,500/month
Security system: $250/month
Total fixed overhead component.

Managing Energy Use

Since this is mostly fixed, big savings come from efficiency, not just cutting the bill. Optimize machine scheduling to run high-draw processes during off-peak utility rate hours, if available in your region. Avoid leaving diagnostic tools powered overnight. This is a hard cost to slash quickly.

Schedule heavy loads strategically.
Audit overnight power draw.
Factor into break-even analysis.

Overhead Context

Honestly, $1,750 is low for a shop running heavy equipment, especially compared to the $10,000 lease. If your utility estimates exceed $1,800 next year, investigate energy-efficient upgrades for the machinery immediately. Defintely track this monthly against budget.

Running Cost 5 : Sales and Marketing Variable Costs

Variable Sales Costs

Your variable selling costs are tied directly to sales volume, hitting $3,917 monthly by 2026, representing a full 50% of revenue. This spend covers sales commissions and project-based marketing needed to drive engine overhaul projects.

Cost Inputs

This cost covers commissions paid to sales staff and project expenses for marketing engine overhauls. To estimate this, you need projected revenue, as the total spend is 50% of that figure. The breakdown is 30% commissions and 20% marketing. Honestly, this high percentage means sales efficiency is defintely critical early on.

Commission rate: 30% of sale value.
Marketing spend: 20% of sale value.
Total variable cost: 50% of revenue.

Cost Control

Since commissions are a fixed percentage of the sale, reducing them requires changing the compensation structure or increasing Average Order Value (AOV). Project-based marketing costs must be tracked per lead source. If lead acquisition cost (LAC) is too high, cut underperforming channels fast.

Negotiate lower commission tiers for high volume.
Tie marketing spend strictly to closed deals.
Focus on high-margin restores to lift AOV.

Margin Pressure Check

A 50% variable selling cost is substantial for a service business dealing with high-ticket overhauls. If you project only $7,834 in monthly revenue in 2026 (to hit the $3,917 expense), your gross margin will be severely pressured by fixed costs like the $49,167 technical payroll.

Running Cost 6 : Software and Diagnostics

Essential Tooling Cost

This overhead mandates $700 monthly for specialized diagnostic software and admin tools. Without these licenses, modern engine management and quality control standards for overhauls simply can't be met. This cost is non-negotiable for precision service delivery.

Software Budget Breakdown

This $700 monthly covers licenses for advanced diagnostic software required to map modern engine parameters. It also funds administrative tools needed for tracking complex overhaul projects. Since this is a fixed operating expense, budget for $8,400 annually ($700 x 12 months) in your initial overhead projections.

Covers diagnostic software access.
Funds admin system licensing.
Fixed cost: $700 per month.

Cost Control Tactics

You can't skimp on core diagnostics, but admin tools offer savings potential. Check if vendor pricing offers annual prepayment discounts, which might save 5% to 10% versus monthly billing. Also, audit usage quarterly to ensure unused seats or modules aren't draining cash. Defintely review contracts before renewal.

Seek annual prepayment discounts.
Audit license utilization quarterly.
Avoid unused seat overhead.

Precision Investment

Relying on outdated or generic tools increases rework risk significantly, eroding the value of your ASE-certified labor. This fixed cost directly supports your UVP of dealership-quality results, making it a critical investment, not just an expense line item.

Running Cost 7 : Insurance and Compliance

Compliance Floor

Your minimum monthly spend on essential liability protection and standards maintenance is fixed at $1,100. This covers both business insurance and required professional certifications before you even turn a wrench on an engine overhaul project.

Mandatory Fixed Compliance

This $1,100 is a non-negotiable fixed cost for Apex Engine Works. It breaks down into $800 monthly for general business insurance, protecting against operational risks, and $300 for professional certifications. You need firm quotes for insurance and a clear list of required ASE certifications to lock this number down. This is a baseline cost, defintely.

Insurance covers operational liability.
Certifications maintain ASE standards.
Total fixed compliance: $1,100/month.

Controlling Certification Spend

Managing compliance means optimizing certification renewal schedules, not cutting coverage entirely. Shop around for bundled insurance policies that cover both the workshop and specialized machinery. Avoid letting certifications lapse, as the resulting fines and rework costs far exceed the $300 monthly fee required to stay current.

Bundle insurance policies for discounts.
Schedule certification renewals efficiently.
Avoid costly lapse penalties.

Compliance Checkpoint

Ensure your $800 insurance premium accurately reflects the high-value inventory and specialized machining equipment inside the shop. Incorrect valuation leads to underinsurance, meaning you pay out-of-pocket when a major claim hits the business.