Overhead

Written By
Paul Tracy
Updated November 4, 2020

What is Overhead?

Overhead refers to the ongoing operating expenses necessary to running a business, but are not attributed to a specific business activity.  Also referred to as "indirect costs."

How does Overhead work?

Generally, overhead expenses include expenses that do not directly generate revenues, such as labor and materials, but are needed to maintain the business operations.  Overhead expenses include expenses such as accounting, advertising, depreciation, insurance, interest, legal, rent, repairs, office supplies, taxes, information and communications, utilities, research and development, customer relations and service, and travel.  These overhead expenses are listed on the company's income statement.

Why does Overhead matter?

Overhead costs are considered fixed costs, that is, they do not rise or fall directly with the cost of goods sold.   Overhead costs are important to monitor and control.  Since they are not directly related to revenues, they can become a larger share of the total expenses and burden a company, soaking up net income and profits.
 

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Overhead.
Be the first to ask a question

If you have a question about Overhead, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Overhead, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Overhead

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms