[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” pac_dcm_carousel_specific_module_num=”0″ border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” pac_dcm_carousel_specific_module_num=”0″ global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Intro” _builder_version=”4.26.1″ header_2_font_size=”32px” custom_padding=”0px||0px||false|false” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n
An overhead is essentially one of the many ongoing business expenses that are not directly related to producing goods or delivering services. Unlike operating expenses, which include costs explicitly related to production, overhead costs are indirect costs necessary to keep a business up and running.<\/p>\n
You\u2019ll want to understand overhead expenses to put yourself in the best position to stay profitable and financially viable for years.<\/p>\n
Overhead costs are administrative expenses that stay constant year-round \u2013 regardless of how much you are actually producing in your business. In other words, an overhead cost won\u2019t fluctuate with the amount of goods sold<\/a> or services delivered, but they are indeed extremely necessary for your daily business operations. Each business expense could have a variable or fixed cost, generally including administrative costs, rent, utilities, business insurance<\/a>, legal fees and more.<\/p>\n <\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2025\/02\/Overhead-definition-2.png” alt=”3 Types of Overhead” title_text=”Overhead Definition 2″ align=”center” _builder_version=”4.26.1″ _module_preset=”default” custom_margin=”-50px|-30px|||false|false” custom_padding=”0px|||||” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.26.1″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n While it differs from sector to sector, for the most part, there are three main categories of business overheads: fixed, variable and semi-variable.<\/p>\n Fixed costs will stay constant no matter whether your business is in a state of high production or experiencing a lull. These expenses must be paid regularly, whether or not your company is generating revenue. Some common examples include:<\/p>\n Next up, variable overheads can fluctuate depending on how active or inactive your business is, as they will increase or decrease with production or sales. Examples include:<\/p>\n Finally, semi-variable overheads have both fixed and variable components. Think of it as a portion of the cost that stays constant, while the rest fluctuates based on usage. For example:<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2025\/02\/Overhead-formula.png” alt=”4 Reasons for Amortisation” title_text=”Overhead Formula” align=”center” admin_label=”Image” _builder_version=”4.26.1″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.26.1″ _module_preset=”default” global_colors_info=”{}”]<\/p>\n To better get to grips with how your overhead rate can impact your daily operations, use this simple formula:<\/p>\n Overhead rate = (Total indirect costs) \/ (Total direct costs)<\/em><\/p>\n Let\u2019s say your total overhead expenses (indirect) are $10,000 and your direct costs (e.g. raw materials, labour) are $50,000. In this scenario, your overhead rate would be:<\/p>\n $10,000 \/ $50,000 = 0.20 or 20%<\/em><\/p>\n This means 20% of your total business costs are overheads.<\/p>\n While they can be \u2013 and often are \u2013 used interchangeably, overhead costs and operating expenses<\/a> are actually different. An indirect cost is something you pay to keep your business running but it\u2019s not directly tied to your product manufacturing or service delivery.<\/p>\n On the other hand, operating expenses include direct production costs, such as raw materials, salaries for your production employees and manufacturing overhead.<\/p>\n Here are some examples of overhead expenses:<\/p>\n Administrative overhead<\/em><\/span><\/p>\n Manufacturing overhead<\/em><\/span><\/p>\n Marketing and sales overhead<\/span><\/em><\/p>\n A high overhead rate can really have an impact on your net profit. The more overhead your business incurs, the lower your profitability. That\u2019s why it\u2019s crucial to stay on top of all your overhead costs, so you can spot areas to improve and boost your business\u2019s financial health \u2013 all while keeping your pricing competitive.<\/p>\n Controlling these expenses will help your financial stability over the long term, whether fixed, variable or semi-variable. Mark it in your calendar to review your business\u2019s overhead costs every month or quarter and find ways to reduce them where possible.<\/p>\n [\/et_pb_text][et_pb_text admin_label=”Related terms” _builder_version=”4.26.1″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” locked=”off” global_colors_info=”{}”]<\/p>\n See related terms<\/strong> <\/p>\n [\/et_pb_text][ba_social_share icon_bg=”#03002e” icon_padding=”10px|12px|10px|12px|true|true” layout=”classic” show_text=”off” btn_padding=”0px|0px|0px|0px|false|false” btn_bg_color=”RGBA(255,255,255,0)” _builder_version=”4.23″ _module_preset=”default” custom_margin=”50px||||false|false” custom_padding=”25px||||false|false” custom_css_before=” content: %22SHARE THIS%22;|| font-size: 16px;|| font-weight: 700;|| line-height: 22px;|| letter-spacing: 0em;|| text-align: center;|| color: #ff5447;|| margin-bottom: 10px;|| display: inline-flex;|| position: absolute;|| margin-top: 10px;” border_width_top_main=”1px” border_color_top_main=”#e4e4e4″ border_radii_icon=”on|5px|5px|5px|5px” global_colors_info=”{}” custom_css_before_last_edited=”off|desktop”][ba_social_share_child _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”facebook” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”linkedin” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”email” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":" An overhead is essentially one of the many ongoing business expenses that are not directly related to producing goods or delivering services. Unlike operating expenses, which include costs explicitly related to production, overhead costs are indirect costs necessary to keep a business up and running. You\u2019ll want to understand overhead expenses to put yourself in […]<\/p>\n","protected":false},"author":35,"featured_media":289067,"menu_order":0,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-288998","glo","type-glo","status-publish","format-standard","has-post-thumbnail","hentry"],"yoast_head":"\n3 different types of overhead costs<\/h2>\n
1. Fixed overhead costs<\/h3>\n
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2. Variable overhead costs<\/h3>\n
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3. Semi-variable overhead costs<\/h3>\n
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How to calculate overhead costs<\/h2>\n
Overhead costs vs operating expenses<\/h2>\n
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The impact of overhead on your net profit<\/h2>\n
What is a liability?<\/a>
What is fixed cost?<\/a>
What is an operating expense?<\/a><\/p>\n