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What Are the Different Types of Overhead Costs?

Monthly utility expenses are overhead costs.
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  • Written By: Nick Mann
  • Edited By: Jessica Seminara
  • Last Modified Date: 03 October 2014
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In the business world, there are usually ongoing expenses required to maintain a business and keep it running. The common name to describe these expenses is called overhead costs. In order to get a better understanding of overhead costs, it's important to know what some of the most common types are. These include rent, utilities, supplies, marketing costs and taxes.

The cost of renting a facility to operate a business is one of the most common overhead costs. Unless the business is operated completely online, it will have to either continually pay rent or purchase a facility. As a result, this is often one of the most necessary and expensive overhead costs. Rent can be particularly expensive when operating a large scale business or renting in a competitive location in a big city.

Utilities are another expense that go hand in hand with paying rent. In order to power a business with basic necessities like electricity, lighting, plumbing and Internet access, it will have to pay utility costs on an ongoing basis. Otherwise the business would be incapable of functioning in most cases. Generally speaking, the larger the facility is, the higher the utility costs will be.

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Supplies are one of the overhead costs that can vary considerably from business to business. For example, a computer repair business would most likely have minimal supply expenses while a convenience store will have significantly more supply expenses. The computer repair shop would only need to order computer parts while the convenience store would have to order a large number of products like snacks, beverages, cigarettes and newspapers on a frequent basis. Consequently, supplies can be one of the main overhead costs for some businesses and only a minimal cost for others.

Marketing costs are another expense that can vary between different businesses. In order to attract new customers, most businesses will implement some form of marketing strategy. Some examples on the small scale include placing ads in local magazines and setting up a website. Examples on the large scale include placing an ad on a billboard or putting commercials on television. As a result, these can make for either minimal overhead costs or potentially huge ones.

In addition, taxes are another operating cost that apply to nearly all businesses besides some non-profit organizations. Whenever payroll gets done, the designated percentage of tax money must be paid. Otherwise, legal complications and fines or imprisonment can take place. Consequently, almost all business are held accountable for paying taxes.

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NathanG
Post 4

@hamje32 - Marketing is expensive no matter what business you’re in. Television is out of the question for many local businesses unless you’re talking about late night cable spots.

However, in our area talk radio enjoys a big following and many businesses get started that way. They take out ads on the local talk radio station and can usually get spots at very reasonable rates.

A lot of local businesses have gotten their start that way. I personally believe that radio is the best way to advertise to the local community.

hamje32
Post 3

@miriam98 - I agree. They factor their costs into the unit of production, however. They figure out their total overhead costs per unit of widgets or whatever they’re making, and make sure they markup the items enough so that they can still make a decent profit.

So as long as you can make a profit it doesn’t matter whether you’re running a brick and mortar operation or something that is completely online. Just know what your real costs are and add a margin for profit.

miriam98
Post 2

@David09 - I think factories have some of the highest overhead costs of any business out there. Utilities and supplies can be quite expensive for factories.

Think about a metal prefabrication plant. I don’t know much about the metal industry but I don’t think metal is cheap. I suppose it depends on what kind of metal you’re buying too.

You also have the electricity used by all that equipment you’re using. I don’t see a lot of ways to reduce factory overhead costs, like you can with other businesses frankly.

David09
Post 1

I’ve heard that using subleased office space is one of the best ways to cut your fixed overhead costs for rent. A subleased office space is one which you basically “share” with another business.

The other business may not need it and so they sublease it. The benefit for you is that you can get decent office space at less than what you would pay for retail office space.

This is great too if you’re just starting out and don’t need a big office, just something to get you going. Usually you also have access to some of the amenities in the building too, so I think it makes sense. When you grow you can always get your own full sized office space.

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