Overhead
Also called: overheads, indirect cost
What is Overhead?
Overhead is the cost of running the business that cannot be traced to a specific product or sale — rent, administration, utilities, software, professional fees. It sits below gross profit in the accounts.
Why Overhead matters
Overhead is what gross profit has to cover before anything reaches the owner. Businesses usually control direct costs carefully and let overhead drift, which is why it deserves an annual line-by-line review.
Overhead formula
Overhead recovery per unit = Total overhead ÷ Expected units sold
Recompute when volume assumptions change, or the recovery is silently wrong.
How Overhead works in practice
For pricing, overhead is often recovered as a percentage of sales or an allocation per unit. Rough allocation is fine; ignoring it entirely is not, because it makes every product look more profitable than it is.
Frequently asked questions
They overlap heavily but are not identical. Overhead is about traceability; fixed cost is about behaviour with volume.