Getting this distinction right affects your margin calculations, your pricing, and how accurately you understand product-level profitability.<\/p>\n
Costs directly traceable to producing a specific product or delivering a specific service \u2014 raw materials, production labor, packaging for that specific item. These scale directly with how much you produce or sell.<\/p>\n
Costs that support the business as a whole but aren’t tied to any single product \u2014 rent, administrative salaries, general insurance, software used across the business. These continue whether you sell one unit or a thousand.<\/p>\n
The same expense category can be direct or indirect depending on context \u2014 rent for a dedicated production facility might be a direct cost, while rent for a general office is overhead. Classify based on whether the cost is tied to a specific product’s creation, not just the expense category name.<\/p>\n
Gross margin calculations should subtract direct costs only; overhead gets accounted for separately, further down the income statement. Mixing the two together muddies both your per-product margin numbers and your overall profitability picture.<\/p>\n","protected":false},"excerpt":{"rendered":"
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 \u2014 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><\/p>\n","protected":false},"author":1,"featured_media":286,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[11,22],"class_list":["post-266","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cost-management","tag-cogs-calculator","tag-overhead-costs"],"_links":{"self":[{"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/posts\/266","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/comments?post=266"}],"version-history":[{"count":1,"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/posts\/266\/revisions"}],"predecessor-version":[{"id":276,"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/posts\/266\/revisions\/276"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/media\/286"}],"wp:attachment":[{"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/media?parent=266"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/categories?post=266"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bizmargin.com\/blog\/wp-json\/wp\/v2\/tags?post=266"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}