Overhead refers to all non-labor expenses required to operateyour 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 ormortgage payments, depreciation on fixed assets (such as cars andoffice equipment), salaries and associated payroll costs, liabilityand other insurance, utilities, membership dues and subscriptions(which can sometimes be affected by sales volume), and legal andaccounting costs. These expenses don’t change, regardless ofwhether a company’s revenue goes up or down.
Variable expenses. Most so-called variable expenses arereally semi variable expenses that fluctuate from month to month inrelation to sales and other factors, such as promotional efforts,change of season, and variations in the prices of supplies andservices. Fitting into this category are expenses for telephone,office supplies (the more business, the greater the use of theseitems), printing, packaging, mailing, advertising, and promotion.When estimating variable expenses, use an average figure based onan estimate of the yearly total.
