As a small business owner, it’s easy to make sense of direct costs.
You buy a product for $5 and sell it for $10.
Simple enough, right?
But then the month ends, and there’s that one receipt in the drawer, staring back at you.
The office rent. The Wi-Fi bill. That design tool you haven’t touched in months but still pay for.
Your profit margins looked good… until they didn’t.
Maybe you made $6,000 this month, but your account feels like it’s running on fumes.
Where did it all go?
And what happens if you don’t track it?
For many small businesses, the issue isn’t what you make, it’s what’s quietly slipping out the back.
Knowing what overhead costs are, how to control them, and when they’re eating too much of your budget is key to staying afloat.
What Are Overhead Costs?
Overhead costs are the expenses your business pays just to keep running, whether you make a sale or not.
They’re not tied to one specific product or service.
You’d still pay them even if no customers walked through your door today.
Let’s say you own a small catering business.
The groceries you buy for an event are a direct cost.
But the rent for your prep kitchen, your monthly accounting software, and business insurance? Those are overhead.
Every business has its own version of overhead, but the common thread is that they’re recurring, often predictable, and absolutely necessary.
They don’t directly generate income, but without them, you can’t operate.
So, while it’s easy to focus on the money coming in, understanding what overhead costs are helps you protect what you keep.
Types of Overhead Costs
Overhead costs usually fall into three main categories: fixed, variable, and semi-variable.
Understanding the difference helps you figure out what you can control, and what you’ll always need to account for.
Fixed Overhead Costs
These are the costs that stay the same month after month, no matter how much business you’re doing.
They’re predictable, which makes them easier to budget, but they also never go away.
Common fixed overhead costs include:
- Office or retail rent
- Salaries for permanent staff
- Insurance premiums
- Business licenses and permits
- Long-term equipment leases
- Regular software subscriptions
Variable Overhead Costs
Variable overhead changes based on how much business you’re doing. The more active things get, the more these costs tend to go up. They’re tied to usage, volume, or activity, so they can fluctuate quite a bit.
If you own a printing business, your electricity bill and packaging costs will spike during a busy season.
Common variable overhead costs include:
- Utilities like electricity, gas, and water
- Shipping and delivery fees
- Office supplies like paper, ink, and cleaning supplies
- Temporary staffing or freelance help
- Small-scale equipment maintenance
Semi-Variable (Mixed) Overhead Costs
These are a mix of both, part fixed, part variable.
You’ll always pay a base amount, but the total cost may increase depending on your business activity.
Common semi-variable overhead costs include:
- Phone and internet services with usage-based pricing
- Sales commissions
- Hourly wages with overtime
- Equipment repairs that depend on the frequency of use
- Vehicle costs like fuel plus monthly loan payments
How Much Overhead Is Too Much?
There’s no universal number that fits every business, but most healthy small businesses aim to keep overhead under 35% of total revenue.
If you’re running a small bakery and bring in $10,000 a month, ideally no more than $3,500 of that should go toward rent, bills, admin, and everything else that isn’t directly making you money.
When overhead creeps past 40-50%, it starts cutting into your profit and your flexibility.
You’ll notice the real impact during slower months.
Your revenue might drop, but your fixed overhead like rent, salaries, or insurance, doesn’t budge.
So even one quiet week can hit your cash flow harder than expected.
That’s the thing about high overhead: it limits your flexibility.
When too much of your income is already spoken for, there’s less room to reinvest, hire help, upgrade equipment, or even pay yourself reliably.
Over time, it creates pressure.
Your business could be doing well on paper with steady sales and a growing customer base, but if your overhead is too heavy, the margins shrink, and the stress builds.
Eventually, it slows your growth and chips away at your net income.
Tips to Reduce Overhead Costs
Overhead isn’t bad, but when it’s bloated, it quietly drains your cash.
The key is trimming the fat without cutting into what makes your business work.
Audit Your Subscriptions
Go through every recurring tool, app, or software.
If your team isn’t using it, drop it.
A lot of small businesses end up paying for tools they barely touch.
Rethink Your Setup
If you’re paying rent, it’s worth asking if there’s room to lower your rate or shift to a more flexible lease.
Some businesses, like tutors or consultants, end up saving a lot by moving into co-working spaces or shared offices that better match their pace.
Bring in Freelancers When You Need Them
You probably don’t need a full-time designer or bookkeeper.
Freelancers can jump in when things get busy and step back when they’re not needed, which keeps your costs lean without sacrificing quality.
Cut Utility Waste
Swapping in LED bulbs, unplugging gear you don’t use, or installing a simple timer or smart thermostat can lower your bill each month.
Places like cafés, salons, or small shops often see a noticeable drop with just a few changes.
Use Digital Tools to Save on Supplies
Going paperless where you can, like invoices, receipts, and notes, not only saves money, it also helps you stay more organized.
Cut the Overhead, Not the Momentum with Help from ROK Financial
Managing overhead expenses isn’t about cutting corners, it’s about keeping your business flexible, profitable, and ready for what’s next.
When you stay on top of what’s going out each month, you give yourself room to grow.
Room to hire when you need help.
Room to invest when opportunity knocks. And room to breathe when sales slow down.
At ROK Financial, we know the weight overhead expenses can carry.
We work directly with small business owners to help lighten that load.
Not just with funding, but with strategy.
We offer a range of financing options, including term loans, business lines of credit, equipment financing, and working capital solutions, customized to fit your unique situation.
We don’t just offer capital.
We work with you to plan for growth, reduce financial stress, and make smarter decisions.
Because staying in business takes more than effort.
It takes insight, planning, and the right partner in your corner.
Connect with ROK Financial today.
