If your business feels like it’s hustling but not earning, it might be time to ask: what are overhead costs, and how are they affecting your profitability.  

A business can have numerous expenses that help keep it running steadily but aren’t derived from a specific business activity, sales, or services. 

However, they are substantial and mandatory, and managing them well leads to maximizing revenues and profits. 

Let’s take a look at it in detail. 

What is Overhead? 

An overhead cost is the cost of staying open as a business even if the sales aren’t booming. 

They usually fall into three categories:

  • Fixed Overhead: These costs stay the same no matter how busy (or quiet) things are. They include rent, insurance, taxes, software subscriptions, etc.
  • Variable Overhead: These shift depending on how much business you’re doing such as utilities, shipping supplies, or printer ink.
  • Semi-Variable (Mixed) Overhead: These have a fixed base but change with usage. Your internet bill or advertising expenses, for example, might be the same every month until you go over the limit.

Knowing what’s fixed, what changes, and what’s somewhere in between helps you understand where the money’s going and what you can adjust if things start to feel tight. 

It also makes budgeting, pricing, and scaling much easier. 

Why Overhead Costs Matter More Than You Think

It’s easy to focus on the things that bring in money—sales, new clients, product launches. 

Those feel urgent.

Overhead doesn’t change because it’s constant and mostly recurring. 

When revenue increases, it’s easy to assume profits follow. 

But if overhead expenses rise faster than income, they might not leave you any net profit. 

For example, if revenue grows by 20% but overhead increases by 30%, the result is often a tighter margin—not a stronger financial position.

This is why monitoring overhead is essential.

It allows you to identify where operational costs may be increasing unnecessarily and helps you make more informed decisions. 

You might ask:

  • Are you maintaining more office space or staff than your current workload requires?
  • Are all of your software subscriptions still necessary and actively used?
  • Would outsourcing certain functions reduce costs without affecting quality?

Often, small adjustments in overhead can improve profitability without the need to increase sales.

What’s Typically Included in Overhead?

Ever looked at your expenses and thought, “Where is all this money even going?”

Overhead is often the answer.

These are the costs that don’t directly generate revenue, but your business couldn’t function without them. 

And because they’re not tied to production or sales, they tend to fly under the radar.

Common overhead expenses for small businesses include:

  • Rent or mortgage payments for your workspace
  • Utilities: electricity, internet, water, phone
  • Admin, HR, and accounting staff salaries
  • Software tools (CRMs, project management, payroll systems)
  • Professional retainers: legal, financial, consulting
  • Business insurance premiums
  • Office supplies and maintenance
  • Licenses, permits, or memberships

In short, these are the expenses that would still show up even if your business took a break from selling. They’re essential to help keep things running. 

What’s Not Considered Overhead?

When you ask what overhead costs are, you also need to understand what they are not because not every business expense qualifies as overhead.

Some costs are tied directly to making or delivering your product or service.

These are called direct costs, or Cost of Goods Sold (COGS) and they sit in a different category altogether.

So what’s the difference?

Let’s say you run a custom bakery. 

The flour, eggs, frosting, and the baker’s wages? 

Those are direct costs because they go straight into making what you sell.

But the front desk staff’s salary, your point-of-sale system, and the rent on your shop are all overhead.

Here are some common non-overhead (direct) costs:

  • Raw materials or inventory
  • Labor directly involved in production or delivery
  • Packaging and shipping costs tied to sales
  • Contractor payments linked to client projects

Understanding what belongs in COGS versus overhead helps you price things properly, track margins accurately, and stay on top of budgeting and taxes. 

How to Track and Manage Overhead 

Knowing what overhead costs are is step one. 

But how do you manage them without drowning in spreadsheets? 

Here’s a simple way to stay in control:

Separate Fixed and Variable

Look at your regular expenses and tag them: what stays the same each month (like rent), and what changes (like your utility bill)?

This gives you a clearer picture of what’s predictable and what needs monitoring.

Check In Quarterly Not Just at Tax Time

Waiting until the end of the year to review overhead is like only checking your weight at your annual physical. 

Make it a habit to review costs every quarter. 

If you spot anything unusual out of sync with your revenue, flag it early.

Use Categories That Actually Make Sense

Group your overhead into categories that make sense for your business, such as:

  • Office & Facilities
  • Tech Tools
  • Admin Payroll

Whether you use QuickBooks or a simple spreadsheet, organization makes everything easier to catch and cut, if needed. 

Eliminate Hidden Drains on Cash

Things like unused software, duplicate subscriptions, and outdated services are the slow leaks that drain cash.

Do a mini audit every six months.

You’ll probably find a few things you can cancel without even thinking twice.  

However, don’t try to do it all solo.

Loop in your bookkeeper or accountant.

They can help set benchmarks, spot red flags, and keep you aligned with your industry’s standards.

Managing Overhead Smartly with ROK Financial 

Overhead costs are a fact of running any business. 

You can trim, track, and negotiate but sometimes, even the most efficient operation needs extra breathing room. 

That’s where financing can play a smart role. At ROK Financial, the focus isn’t just on handing out loans.

We help small business owners make strategic decisions that actually improve their bottom line. 

Whether it’s a term loan to spread out big expenses, a line of credit to smooth over seasonal spikes, or access to equipment financing that keeps operations running without draining your cash, ROK helps tailor the solution to your real-world needs. 

Think your overhead is holding your business back? 

Book a consultation with ROK Financial to see if smart funding could give you the breathing room to move forward with confidence.