Overhead

By Entrepreneur Staff

Pencil

Overhead 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.

More from Operations

Capital Equipment

Equipment that you use to manufacture a product, provide a service or use to sell, store and deliver merchandise. This equipment has an extended life so that it is properly regarded as a fixed asset.

See full definition

Fulfillment

The process of receiving, packaging and shipping orders for goods

See full definition

Importing

The process of bringing goods from one country for the purpose of reselling them in another country

See full definition

Depreciation

An expense item set up to express the diminishing life expectancy and value of any equipment (including vehicles). Depreciation is set up over a fixed period of time based on current tax regulation. Items fully depreciated are no longer carried as assets on the company books.

See full definition

Latest Articles

Science & Technology

Save Nearly $400 on This 13-Course Excel, VBA, and Data Science Bundle

Pick up this e-learning bundle for $35, this week only.

Growing a Business

How to Regain Your Passion for Your Business — And How to Keep It Alive

Is your passion fading? Here's how to create a business model centered around keeping your passion alive and well.

Science & Technology

4 Reasons Why Your Customer Service Is About to Get a Whole Lot Better in 2024

As the technology powering AI customer support jumps to the next level, the quality of service will greatly improve.