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What are Overheads?

Overheads (Definition)

Overheads are costs that are incurred in the daily operations of a business. They may be traced to a specific cost unit or business activity, but they make no direct contribution to the bottom line of the organisation. Also known as β€œoverhead costs," "overhead expenditures," or "operating expenses", these are costs that essential for the business to continue to operate. They include things like rent a business pays for their premises; administrative costs related to running the business, such as salaries for a receptionist or legal fees; and utilities bills, such as gas and internet. Overheads are categorised under three headings:

  • Fixed overheads are the constant costs that don’t change, such as taxes and rent
  • Variable overheads are the expenses that change with the business, increasing or decreasing, such as advertising costs and equipment repair
  • Semi-variable overheads are a mix of both, they can come at any time and may have a base rate the company needs to pay, or that rate could fluctuate. Electricity and water bills are good examples of this.
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