Overhead cost is a term referring to an operating cost of a business that isn’t directly related to the materials or labor needed to create an item. Overhead costs are generally seen as fixed expenses, and these costs will still exist, whether or not an item is created or sold. Unfortunately, overhead costs are something many sellers neglect to include when pricing their products. When you forget to take your overhead costs into consideration, then you may just find them eating up your profits later on. Here are some of the more easily identifiable overhead costs you should pay attention to:
You may feel that your business is rent-free if you are working from home, but that shouldn’t always be the case. You are using a specific portion of your living space, and so your business should pay for a specific percentage of your monthly rent.
Lights, heat, air conditioning, and water are some of the utilities you have to think about. If you are involved in a craft that uses up a lot of electricity, then you need to take this into consideration when figuring out your overhead costs.
The various equipment and tools you use for your business are considered an investment. Maintenance, repair and even replacement of these items should also be considered.
4) Phone bill
Do you have a separate phone line for your business? If the answer is no, then you need to estimate the number of incoming and outgoing business calls you make. If you make or take long distance calls, be sure to add this into your total.
5) Office supplies
All office supplies used to run your business are also considered overhead expenses. This includes letterhead stationery, envelopes, pens, business cards, printer cartridges, computer paper and even software.
6) Packaging and shipping materials
The little things you use for packaging and shipping your items also need to be added into the equation. This includes your packing tape, boxes, bags, labels, bubble wrap, tissues and stamps.
If you use a car or van to deliver your products or even pick up your supplies, then your gas is another overhead expense to compute.
Overhead costs are usually measured over a specific period of time, such as a year. If you’ve been selling for quite some time, you can easily estimate such costs based on your expenses from previous years. If you are just getting started, however, you will need to make an educated guess. It may seem a tedious task to keep track of your overhead expenses, especially if you are managing a home business. However, if you truly want to be profitable, then you must make more than what you spend.
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