What It Means in Business, Major Types, and Examples [Video]

Overhead refers to the ongoing business expenses not directly attributed to creating a product or service. It is important for budgeting purposes but also for determining how much a company must charge for its products or services to make a profit. In short, overhead is any expense incurred to support the business while not being directly related to a specific product or service.

A company must pay overhead on an ongoing basis, regardless of how much or how little the company sells. For example, a service-based business with an office has overhead expenses, such as rent, utilities, and insurance that are in addition to direct costs (such as labor and supplies) of providing its service.

Expenses related to overhead appear on a company’s income statement, and they directly affect the overall profitability of the business. The company must account for overhead expenses to determine its net income, also referred to as …