You remembered the balloons, flowers, ribbon, packaging, or products. You even remembered to charge for your time. But who paid for the insurance, website, storage, software, and the electricity keeping everything running? If those costs never make it into your pricing plan, your business still pays them. It just has to find the money somewhere else.
Overhead is the cost of supporting the business
For planning purposes, overhead includes operating costs you don’t assign directly to one order. Rent, insurance, bookkeeping, general marketing, subscriptions, and administrative labor often belong here. Direct costs belong to particular work: the flowers used for an arrangement, the materials in an installation, or the labor assigned to that job. The same type of expense can have different uses. Delivery fuel assigned to a specific order may be direct; general business travel may be overhead. Choose a consistent method and avoid counting the expense in both places.
Build a monthly list from real statements
Review at least three months of bank and credit-card activity, then check a full year for annual or seasonal bills. Group the business portion of expenses under:
Space: rent, storage, utilities, cleaning, and security.
Administration: phone, internet, software, bookkeeping, and general office supplies.
Protection: business insurance, licenses, and recurring professional fees.
Marketing: website hosting, email tools, and ongoing advertising.
People and equipment: indirect labor, routine maintenance, and other supporting costs.
Divide an annual $1,200 insurance bill by 12 to plan for $100 a month. A quarterly $300 bill also averages $100 a month. Keep the actual due dates in your cash plan.
Give overhead a realistic place in your prices
Suppose your monthly overhead is $2,400 and you reasonably expect 80 billable production hours. A simple planning rate is $2,400 ÷ 80 = $30 per billable hour.
A job using four of those hours needs a $120 overhead allocation under that method, in addition to direct costs and profit. Use billable hours, not every hour you’re awake or at work. Admin, quoting, and marketing take time but may not be separately sold. If your jobs vary heavily in materials or equipment, another allocation method may fit better.
Watch the two common traps
Don’t divide overhead across an imaginary fully booked calendar. And don’t assume overhead is perfectly fixed forever. Some costs increase with volume or change when you add space or people. Review your estimate as actual bookings and expenses change. Keep debt repayments and major equipment purchases visible in a separate cash plan; their accounting treatment can differ from monthly operating expenses.
Want to find the costs you’ve been carrying? Use the free overhead calculator [OVERHEAD_CALCULATOR_URL] to organize your expenses and estimate your monthly total before you price the next job.
0 comments