Not all overhead behaves the same way month to month, and knowing which category a cost falls into changes how you plan for and manage it.
Fixed overhead
Stays the same regardless of business activity — rent, insurance premiums, salaried staff. Predictable, but doesn’t shrink automatically during a slow month.
Variable overhead
Moves with business activity — shipping supplies, hourly labor tied to volume, transaction fees. Naturally scales down during slower periods, which offers some built-in protection.
Semi-variable overhead
Has a fixed base plus a variable component — a phone plan with a base fee plus usage charges, utilities with a connection fee plus consumption cost.
Why the distinction matters practically
During a slow period, variable costs adjust on their own, but fixed costs don’t — which is exactly why fixed overhead is usually the first thing to scrutinize when cash flow tightens, since it keeps accruing regardless of revenue.