Knowing your overhead percentage isn’t just accounting—it’s survival. Whether you run a small coffee shop, a digital agency, or a global manufacturing firm, tracking overhead costs helps you stay profitable, price your services right, and grow with control.
But how much is too much when it comes to overhead? What’s considered “good”? Let’s break it down clearly, globally, and in a way that helps you make better decisions—no matter where you do business.
What Is Overhead?
Overhead refers to the indirect costs of running your business. These aren’t tied directly to making a product or providing a service, but they’re essential to keeping things running.
Common Overhead Expenses:
- Rent or lease payments
- Utilities (electricity, water, internet)
- Salaries for admin or support staff
- Insurance
- Office supplies
- Marketing
- Equipment maintenance
- Software subscriptions
If you’d still stay open even without producing anything, those expenses probably fall under overhead.
How to Calculate Overhead Percentage
It’s simple. Here’s the formula:
Overhead Percentage = (Total Overhead Costs / Total Revenue) × 100
Example:
Let’s say your business:
- Spends $10,000 per month on overhead
- Brings in $40,000 in monthly revenue
Overhead Percentage = (10,000 / 40,000) × 100 = 25%
That means 25% of your income goes toward keeping the lights on.
What Is a Good Overhead Percentage?
There’s no one-size-fits-all number—but here are the generally healthy ranges by business type:
| Business Type | Typical Overhead % |
| Service-based | 15% – 30% |
| Retail | 20% – 35% |
| Manufacturing | 25% – 50% |
| Online businesses | 10% – 25% |
| Nonprofits (varies) | 20% – 40% |
Most businesses aim to keep overhead below 35%. Anything higher might start to eat into your profit.
Still, these are flexible guidelines. A 40% overhead might be fine in a high-cost industry with premium pricing. What matters most is that you understand your numbers and maintain a healthy profit margin.
Factors That Affect Overhead Percentage
Several things influence your ideal overhead percentage:
1. Industry Type
Service companies (like consultants or designers) usually need less physical space and equipment. Their overhead tends to be lower.
On the other hand, manufacturers and brick-and-mortar businesses have higher facility, labor, and equipment costs.
2. Business Size
Large companies may have higher overall overhead but a lower percentage—thanks to higher revenues spreading the cost out.
Smaller businesses might have fewer expenses, but those costs take a bigger slice of the pie.
3. Workforce & Labor Costs
Wages, benefits, and office space drive up overhead. Remote or hybrid models often help reduce it.
4. Technology Usage
Automation, cloud services, and remote tools can lower long-term costs.
5. Seasonality
Tourism, retail, farming—many businesses face seasonal spikes and dips. During low months, the overhead percentage can shoot up even if your costs don’t change.
How to Lower Overhead Costs Without Cutting Corners
Here are practical, business-friendly ways to reduce overhead without hurting your service quality:
- Review your subscriptions. Cancel what you don’t use.
- Outsource non-core tasks like bookkeeping, IT, or HR.
- Negotiate vendor contracts or look for better deals.
- Use remote tools to save on office space.
- Go paperless to cut supply and printing costs.
- Track energy usage and reduce wastage.
Even small tweaks can lead to big long-term savings.
Why Overhead Percentage Matters (And Why You Should Care)
Let’s be real—running a business isn’t just about making money. It’s about keeping more of it.
That’s where overhead percentage comes in. This simple metric can reveal what’s silently draining your profits in the background. When you know your overhead percentage, you’re not just guessing—you’re making smarter, sharper decisions based on real numbers.
Here’s what understanding your overhead percentage can help you do:
- Set Better Prices
If your pricing doesn’t account for overhead, you could be selling at a loss without even realizing it. - Spot Hidden Waste
A rising overhead percentage might point to bloated expenses or underused subscriptions that are slowly bleeding your budget. - Build Realistic Budgets
Knowing fixed costs helps you plan cash flow. It gives you a clearer picture of how much you need to break even. - Forecast Profitability with Confidence
When you separate direct from indirect costs, your profit margins become clearer—and so do your business goals. - Grow Safely
Scaling your business without watching overhead is risky. This metric helps ensure your growth doesn’t come at the cost of financial stability.
In short, your overhead percentage isn’t just another number. It’s a reality check. A pulse on your operations. And a tool for staying lean, focused, and profitable.
Quick Recap You’ll Actually Remember
Let’s wrap things up with the key takeaways:
| What You Need to Know | Why It Matters |
| Overhead = Ongoing, indirect costs | Think rent, admin salaries, software—stuff that keeps you running |
| A healthy overhead percentage is under 35% | This keeps more of your revenue as profit |
| Your “ideal” percentage depends on your business | Industry, size, model, and location all affect it |
| Review it often—don’t just set and forget | Expenses shift, tech upgrades happen—keep adjusting |
| Lower isn’t always better | Cutting too much overhead can limit your ability to grow or operate effectively |
Overhead may be behind the scenes, but it has a front-row seat in your business’s financial success.
Final Thoughts
Overhead costs might not grab attention, but they play a crucial role in your business’s health. Understanding your overhead percentage helps you spot inefficiencies and make smart investments.
There’s no one-size-fits-all answer, but by knowing your numbers, you can create a business that’s both profitable and resilient—no matter the market conditions.
Remember, it’s not just about reducing costs; it’s about making your overhead work for you.
FAQS
Q: What’s included in overhead costs?
A: Anything that keeps your business running but isn’t directly linked to production—rent, utilities, insurance, salaries for support staff, software, etc.
Q: Can I have a high overhead and still be profitable?
A: Yes, if your pricing and revenue are strong. Some industries naturally carry higher overhead but also generate more income.
Q: How often should I calculate my overhead percentage?
A: Ideally every month. At minimum, review it quarterly or annually—especially before making pricing or hiring decisions.
Q: Is labor always considered overhead?
A: Not always. Direct labor involved in making your product isn’t overhead. But administrative or management wages usually are.
Q: Should I compare my overhead with other businesses?
A: It’s helpful for context, but every business is unique. Use industry benchmarks as a guide—not a rule.
