What are Overhead Costs and How Do You Calculate Them?

5 minute read
Two men in a woodworking shop calculate their overhead costs on a laptop

Whether you’re starting a new business or side hustle, or you’re looking to scale your current business, calculating and forecasting for overhead costs is always a significant factor in your business decisions. 

Overhead expenses affect all aspects of your business: from your income to profit margin, to whether you can afford to hire additional staff, purchase raw materials, or pay for marketing and advertising. It’s also an integral part of a business plan, which you’ll need if you want to secure funding in the form of loans, grants, or from investors. 

But what exactly are overhead costs and how can you calculate them? What is a healthy overhead cost? This guide will give you all the information you need so you can grow your business with confidence. 

What are overhead costs?