Definition: The indirect costs or fixed expenses of operating a business (that
is, the costs not directly related to the manufacture of a product
or delivery of a service) that range from rent to administrative
costs to marketing costs
Overhead refers to all non-labor expenses required to operate
your business. These expenses are either fixed or variable:
Fixed expenses. No matter what your sales volume is,
fixed costs must be met every month. Fixed expenses include rent or
mortgage payments, depreciation on fixed assets (such as cars and
office equipment), salaries and associated payroll costs, liability
and other insurance, utilities, membership dues and subscriptions
(which can sometimes be affected by sales volume), and legal and
accounting costs. These expenses don't change, regardless of
whether a company's revenue goes up or down.
Variable expenses. Most so-called variable expenses are
really semi variable expenses that fluctuate from month to month in
relation to sales and other factors, such as promotional efforts,
change of season, and variations in the prices of supplies and
services. Fitting into this category are expenses for telephone,
office supplies (the more business, the greater the use of these
items), printing, packaging, mailing, advertising, and promotion.
When estimating variable expenses, use an average figure based on
an estimate of the yearly total.