Heat wheels are used in ventilation systems to provide indoor thermal comfort by recovering considerable amount of sensible energy from exhaust airstream. The transient single step test is a new testing method developed to determine the sensible effectiveness of heat wheels. In practice, heat loss/gain may create large uncertainty in the sensible effectiveness obtained through the transient testing. In this study, the transient analytical model in the literature is extended to account for heat loss/gain effects in the transient testing. The results state that in particular operating conditions, the sensible effectiveness can be affected by more than 10% due to heat loss/gain. A new testing facility is developed to investigate the effects of heat loss/gain on the sensible effectiveness through transient testing of a small-scale heat exchanger. After decoupling heat loss/gain effects from transient test data, less than 2% difference was observed in the sensible effectiveness while supply and exhaust flow rate was small (Re < 209) and the temperature difference between them was ΔTst < 7.0 °C. However, the sensible effectiveness decreased more than 9% while ΔTst > 37.5 °C or Re > 600. An empirical correlation was proposed based on the transient test data that correlates the sensible effectiveness with the heat capacity rate ratio. Comparing the results of proposed correlation with literature, less than 2% difference was observed at the heat capacity rate ratio of greater than 0.5 after the heat loss/gain effects were decoupled from transient test data.