Accounting
Overhead
Overhead is the ongoing cost of running a business that isn’t tied to a specific product or job — things like rent, software, insurance, and utilities.
What overhead is
Overhead covers the expenses you pay to keep the business running regardless of how much work you do — office or shop rent, software subscriptions, insurance, phone and internet, accounting, and administrative time. Unlike direct costs (materials and labor for a specific job), overhead can’t be traced to one project.
Overhead can be fixed (rent that’s the same every month) or variable (utilities that rise with usage), but either way it’s a cost of being open for business.
Why overhead matters for pricing
If your prices only cover direct costs, overhead quietly eats your profit. To price profitably, you need rates that cover materials and labor and a share of overhead and a margin on top.
Knowing your overhead per month (and per billable hour) is what lets you set rates and markups that actually leave you with profit at the end of the month.
Example: A solo contractor pays $2,000/month in rent, software, insurance, and phone. That $2,000 is overhead he must cover through his job pricing before he earns any profit.
FAQs
Frequently asked questions
What counts as overhead?
Ongoing costs not tied to a specific job — rent, utilities, software, insurance, admin, and similar. Direct materials and labor for a particular project are not overhead.
Why does overhead matter when setting prices?
Your rates need to cover direct costs plus a share of overhead plus profit. If pricing only covers direct costs, overhead erodes your margin.
Related terms
Markup
Markup is the amount added to a product or service’s cost to set its selling price, usually expressed as a percentage of that cost.
Payment terms
Payment terms are the conditions on an invoice that state when payment is due and how it should be made — for example "Net 30" or "Due on receipt."
Invoice
An invoice is a document a seller sends to a buyer that itemizes goods or services provided and requests payment by a stated due date.
Put it into practice
WaffleInvoice lets you create branded invoices, set payment terms, collect payments online, and automate reminders — free for unlimited invoices.
Price and invoice with confidence Browse the glossaryNo credit card required.