Overhead

Quick Summary of Overhead

Expenses incurred in the daily operation of a business such as rent, salaries, and insurance, which are not directly related to the making of a product or a service.

Overhead is the general term for operating expenses which when subtracted from gross profit results in operating profit on the income statement.

They are sometimes called SARE (Sales, Administration, Research and Engineering). They include:

• Research and development, engineering, IT
• Depreciation and amortization
• Selling, general, and administrative costs. These include:
  • Selling expenses such as commissions to salespeople.
  • Various salaries, such as those for management
  • Corporate headquarters expenses including the corporate jet
  • Legal, accounting, professional services
  • Marketing, advertising

Examples of Overhead in a sentence

Many small companies find that on-line sales are much more profitable because they don’t have to worry about the overhead associated with maintaining a brick-and-mortar retail store.

One of the things potential investors look for in a company is a reasonable overhead margin, which shows that the managers have an eye on the budget.

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