Overhead is the cost of being in business at all, separate from the cost of any one product. Studio rent, utilities, software subscriptions, insurance, booth fees, and equipment depreciation are overhead — you pay them whether you sell one item or a thousand. They are what gross profit has to cover before anything becomes net profit.
Ignoring overhead is why a product can look profitable per unit and still leave the business in the red. If every item carries a healthy gross margin but the total gross profit does not clear the monthly overhead, you are losing money — which is exactly why pricing has to be set against margin, not just markup over materials.
A practical habit is to estimate annual overhead, divide it across the units you realistically expect to sell, and treat that figure as a cost each product must carry on top of its direct materials and labor.
Related terms
Net Profit
What remains after all costs — direct costs of goods sold plus overhead, fees, and taxes — are subtracted from revenue. The true bottom line.
Gross Margin
Gross profit expressed as a percentage of the selling price — what fraction of each dollar of revenue is left after the direct cost of the goods sold.
Break-Even Point
The level of sales at which total revenue exactly covers total costs — the point where the business stops losing money and starts making it.
Depreciation
The gradual decrease in value of equipment over time. Ardent Seller tracks depreciation schedules for your equipment to help with tax reporting and replacement planning.