What Are Overhead Costs?

Overhead costs are the regular expenses you pay, even if you don’t make a sale. They differ from the costs of the products or services you sell.

Common examples include:

• Rent or mortgage for your space
• Utilities such as electricity, gas, water, internet
• Insurance (liability, property, etc.)
• Office or cleaning supplies
• Marketing and advertising
• Employee benefits including health coverage
• Software or tech tools (like your POS system)

For a more complete list on how to identify your startup expenses, the U.S. Small Business Administration offers calculators and guides to help businesses like yours track startup and ongoing expenses.

Why Overhead Costs Matter

Understanding your overhead helps you see the full picture of your business. Without this knowledge, you're making decisions blindfolded.

Here's what becomes possible when you know your true costs: 

Set the right prices - If you’re only thinking about ingredient or product costs, you might undercharge. Including overhead ensures your pricing covers all your business expenses. 

Make budgeting easier - Knowing your monthly overhead expenses gives you a clear baseline for how much your business needs to earn to break even.

Spot opportunities to save - Some overhead is essential, but other costs can be reduced or managed differently.

Invest smartly in employees - Employee health coverage keeps workers healthy, reduces turnover, and lowers the time and cost spent hiring and training replacements. Offering coverage helps employees stay longer and keeps your business running smoothly.

Different Types of Overhead Costs

There are two main types of overhead to keep in mind so that you can stay prepared during both busy periods and slow weeks: 

• Fixed costs are predictable expenses that stay the same each month, like rent, business licenses and insurance.
• Variable costs are changing expenses that can go higher when business picks up or may drop during slower periods such as utility bills, cleaning supplies and more.

How to Keep Overhead Under Control

You don’t need to be an accountant to manage your expenses. Try these practical steps:

1.  Monitor every business expense

Use a notebook, spreadsheet or a tracker app – whatever works. The goal is to know where your money goes.

1. Review bills regularly

Compare this month to last month. Ask why costs went up, and you might find things you forgot you were paying for.

1. Shop smart

Compare vendors, adjust supply orders or cut unnecessary subscriptions to save money. Set a quarterly reminder to review what you're paying for. Review contracts annually – prices change, and so should your deals.

1. Watch your energy use

Swap out old light bulbs for LEDs or power down unused machines to reduce your utility bills. A programmable thermostat alone can save hundreds annually.

1. Invest in smart overhead

Not all overhead is bad. Some expenses strengthen your business. For example, health coverage might seem like another cost, but it’s a smart investment. Offering your employees basic benefits helps cut down on turnover, builds loyalty and avoids the high cost of constant hiring and training.

HealthChoice of Michigan makes providing coverage simple and predictable.

We have a Small Business Program designed for Wayne and Oakland County employers who want reliable health coverage without the complexity. With a fixed monthly rate, no deductibles and streamlined enrollment, you can offer quality benefits that help keep your team healthy and loyal.

Learn more about how to start your application.

THE BOTTOM LINE

Overhead costs are part of running a business, but they don’t have to overwhelm you. The more you understand them, the more confident you’ll feel making decisions, setting prices and growing your business on your own terms.

The difference between businesses that thrive and those that just survive often comes down to one thing: knowing which overhead expenses actually work for you.

Smart investments in areas like health coverage help retain good employees and reduce costly turnover. That's when overhead stops feeling like a burden and starts feeling like the foundation of something sustainable.