B2B | Small Business

Overhead Costs in a Service Industry

Author: Linda Ray
Publish Date: 

Your overhead costs primarily consist of the money you must put out to stay in business. It includes your office space, utilities, transportation and supplies. Overhead often is undervalued because so many costs are indirect and difficult to predict. The cost of gas, for example, changes regularly and remains out of your control. Construction costs usually come in higher than expected. A bevy of unexpected interruptions ranging from audits to computer breakdowns often interfere with your projections.

To begin managing your overhead costs you need to start by identifying the critical services your company performs. To remain successful, you must provide employees with the basic tools with which they can continue to offer those critical services. If your company relies on phone calls to receive service orders, your phone system is a critical tool that you cannot afford to cut back on. Transportation costs are vital if your company provides in-home service or your sales meets with clients to sign up new business.

In addition to the direct services your company provides, you need to assess the importance of your support structure. Accounting often is an area that uses overhead resources such as computers, office space and postage. Administrative staff also requires sufficient office resources to perform duties such as taking customer service calls, managing outside service personnel and preparing marketing materials. Office space and utilities are some of the basic support costs that must be ranked in order of importance to carrying out your company goals.

Since you don’t have overhead for materials and manufacturing, maintaining space for inventory or supporting those activities, you need to balance the overhead you do incur versus the payoff you receive from the outlay of resources. Small business owners may decide that paying for transportation to visit customers is more important than maintaining a luxury suite of offices for back office support activities, for example. Many entrepreneurs eschew commercial office space to work out of their homes to reduce overhead costs. Consider the value of each cost and how it translates to profit when looking for ways to reduce your overhead.

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