Your overhead rate tells you how much indirect cost you’re carrying for every dollar of direct cost, and it’s the number that lets you fold overhead into pricing accurately instead of guessing. The formula Overhead rate = Total overhead costs ÷ Total direct costs (or another allocation base, like direct labor hours), typically expressed as … Read more
If you sell both wholesale and direct-to-consumer, your wholesale markup needs to leave enough room for your retail partners to mark the product up again and still sell at a competitive final price. The pricing chain to think through Your cost to produce or source the product Your wholesale price to retail partners, which needs … Read more
Profit percentage and margin percentage are often used interchangeably, but knowing exactly which calculation you’re looking at matters when comparing numbers across products or time periods. The calculation Profit percentage equals revenue minus total costs, divided by revenue, times 100, the same core formula as gross margin, but the result depends heavily on which costs … Read more
FBA sellers often calculate margin off the wrong number, product cost alone, while Amazon’s fee structure quietly takes a much bigger bite than most sellers initially account for. The full cost stack for an FBA product Product cost, manufacturing or wholesale Inbound shipping to Amazon’s warehouse Amazon referral fee, typically 8-15% of sale price depending … Read more
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Overhead naturally rises in absolute dollar terms as a business grows — that’s not automatically a problem. But overhead rising faster than revenue, or rising with no clear driver, is worth investigating rather than dismissing as normal growth. Signals worth paying attention to Overhead as a percentage of revenue is trending up over multiple months, … Read more
Overhead that’s only reviewed once a year at tax time means months of drift go unnoticed — a rising cost or a forgotten subscription can run for a long time before anyone catches it. A simple monthly tracking approach Categorize overhead into a small number of consistent buckets (rent, software, insurance, admin, etc.) rather than … Read more
Rent and payroll are obvious overhead. A number of real, recurring costs are easy to underestimate or forget entirely when totaling up overhead — and forgetting them leads to underpriced products and an inaccurate profitability picture. Commonly overlooked overhead Payment processing fees, which quietly add up as a percentage of every transaction Software subscriptions accumulated … Read more
The instinct when overhead feels high is to cut broadly, but indiscriminate cuts to things like software, training, or maintenance often cost more in lost efficiency than they save. Lower-risk places to look first Renegotiating existing vendor contracts and subscriptions rather than immediately switching or canceling Consolidating overlapping software tools doing similar jobs Shifting fixed … Read more
Getting this distinction right affects your margin calculations, your pricing, and how accurately you understand product-level profitability. Direct costs Costs directly traceable to producing a specific product or delivering a specific service — raw materials, production labor, packaging for that specific item. These scale directly with how much you produce or sell. Overhead (indirect) costs … Read more
A business selling more than one product or service line needs a fair way to split shared overhead — office rent, admin salaries, shared software — across everything it supports, rather than assuming every line carries an equal share. Common allocation methods By revenue share — each product absorbs overhead proportional to how much revenue … Read more
Pricing based only on product cost and a target margin, without folding in overhead, is one of the most common reasons a business can look profitable per sale and still struggle overall. A simple way to fold overhead in Calculate your total monthly overhead Divide it across your expected sales volume to get an overhead … Read more
There’s no single universal target, but a commonly cited general benchmark is keeping overhead under roughly 35% of revenue, with meaningful variation by industry and business model. Why the benchmark varies so much by industry A service business with minimal physical footprint may run well below that benchmark A retail business with physical locations and … Read more
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 … Read more