Overhead Expenses Demystified for Your Handmade Business

What They Are & Why They Matter in Your Handmade Business

Running a handmade business comes with a whole lot of heart ……. but also a whole lot of hidden costs that quietly nibble away at your profit if you’re not paying attention.

Overhead expenses in your handmade business are confusing. Let’s untangle the web of overhead expenses in your handmade business – and no, it’s not about expenses that are literally hovering over your head ?

If you’re confused about handmade business expenses, start with this guide to handmade business expenses and what actually counts.

Most makers know how to track the obvious stuff – yarn, fabric, beads, clay, packing, shipping labels – but OVERHEAD? It’s confusing. Overhead is the sneaky little gremlins that live in the background, eating up your cash while your busy admiring your latest finished project or planning your next WIP.

In a previous post – Keeping track of expenses for your handmade business, we learned that overhead is just accounting speak jargon that means – costs (money you spend) in your business that has nothing to do with the cost of actually making your crafty creations.

In this post, we’re going to take a deeper look into overhead. Because once you understand overhead — and how to spread it across your products in a fair and sustainable way — your pricing becomes clearer, your profit becomes real, and you stop feeling like you’re “working for free.”

Grab a cup of coffee and let’s break this down, maker-to-maker.

(FYI, this post was originally published on 11/11/2017 and has been updated).

What Is Overhead? (A Maker-Friendly Explanation)

Think of overhead as the backstage crew of your handmade business.

These costs don’t show up in your final product…..

They’re not stitched, glued, cast, crocheted, printed, or woven into anything you sell…..

But without them? Your whole business falls apart.

Overhead = the indirect costs required to run your business, such as:

• Website hosting and domain renewals
• Email marketing + automation tools
• Social media scheduling tools
• Canva Pro, Adobe, Lightroom, or other design software
• Etsy listing fees
• Shopify or pattern-selling monthly platform fees
• Product photography equipment (if it’s under $500 – otherwise a business Asset)
• Gas + mileage for business errands
• Business insurance
• A portion of your home utilities (if you work from home)
• Office supplies
• Bank fees
• Bookkeeping software
• And yes, the coffee that keeps you alive during tax season (that’s an office expense)

These are all legitimate business expenses that can be deducted or include on your Schedule C tax return here in the U.S.

They just aren’t tied to any one specific item that you make – which is why so many makers forget about them.

Fixed vs Variable Overhead

Now don’t freak out over the term “fixed or variable overhead” — it’s not as scary as it sounds. Here’s a quick breakdown to help you “see” and understand your costs clearly:

Fixed Overhead

Costs that stay the same each month — or close to it (see that’s not so scary):

• Website hosting
• Monthly or annual memberships + subscriptions
• Rent or studio space
• Insurance
• Bookkeeping software (if you pay a monthly fee)

Variable Overhead

Costs that change based on how busy your are:

• Packaging + shipping materials
• Gas + mileage
• Office supplies
• Materials + supplies (inventory)
• Platform transaction fees
• Small tools & equipment you purchase once
• Ad spend

Knowing which is which helps you plan, budget, and price your products more confidently.

How to Calculate Your Overhead (Without Wanting to Cry)

Here’s a simple, no-accounting-degree-needed approach:

STEP 1: LIST EVERY business expense you pay in a year.

• Monthly expenses x 12
• Quarterly expenses x 4
• Yearly expenses x 1
• One-time purchases that support the biz = include these too
• Add it all together —>
• TOTAL ANNUAL OVERHEAD

Now you just need to spread this cost across your products so every sale covers it’s fair share.

You’ve got two realistic options:

OPTION A: Hourly Overhead Rate

Perfect if you track your time (and you should).

Formula:
Total annual overhead ÷ 8,760 hours = overhead cost per hour

Then for each product:
Overhead cost per hour x hours to make the item = overhead added to that item

OPTION B: Per-Item Overhead Rate

Great if your products are similar or you want an easy plug-in number that may or may not be spot on.

Formula:
Total annual overhead ÷ number of items YOU EXPECT to sell = overhead per item.

Then add that amount to the price of every product you create.

Some handmade biz coaches recommend this method for newer makers who aren’t tracking time yet, but still want fairly accurate pricing.

If You Work From Home, Overhead Gets Even More Important

A PORTION of your:

• electric bill
• heating
• water
• internet
• home office space
• some repairs
• rent or mortgage
• maybe even property taxes and condo fees

can count toward your business overhead and included in your Fair Hourly Wage (and MIGHT be tax deductible).

But calculating it can get confusing FAST.

👉 This is exactly why I created the Business Use of Home Worksheet— plug in your numbers, and it handles the math for you.

NOTE: Every CPA/Tax Preparer has different views on “Business Use of Home” – however, even IF they do not allow you to take it as a deduction on your tax return, you can still determine the hourly value that it costs you to run your home and incorporate that amount into your Fair Hourly Wage.

Why Getting Overhead Right Actually Matters

When overhead is NOT in your prices:

• your profit margin quietly disappears
• your “reasonable” price suddenly feels too low
• you underpay yourself without realizing it
• you’re not able to reinvest in your business
• and you end up exhausted, overwhelmed, and wondering why your math never adds up

But when overhead IS included:

• pricing makes sense
• profit becomes predictable
• you stop guessing and start planning
• your business shifts from “expensive hobby” to actual business
• and you FINALLY feel like you’re being paid fairly for your skill and time

Let’s Talk About the “One Spreadsheet” Myth 😂

I’ve run across some business gurus who shout:

“You only need (MY) ONE spreadsheet to run your entire handmade business!”

Yeah……NO

Here’s the truth every handmade biz owner should know:

Some days it absolutely feels like you need 15 different spreadsheets to run your handmade business!

And it’s because you’re tracking:

• pricing
• materials inventory
• finished items/goods inventory
• shipping supplies
• cost of goods sold
• expenses
• sales
• craft fair data
• booth fees
• business mileage
• business use of home
• and, of course,
  the mysterious “where the hell did all my money go?” log

Running a handmade business is VERY hands-on.

Real supplies
Real inventory
Real products
Real moving parts

A single “cute little boss babe spreadsheet” isn’t going to cut it – not if you want accurate pricing, real profit, and to actually pay yourself.

BUT…

Overhead is the piece that quietly ties the whole financial puzzle together.

And that’s exactly why your calculators matter……….even if you use real bookkeeping software.

One Tool That Make This Way Easier

The 10-Minute Bookkeeper – Handmade Business Spreadsheet Bookkeeping System provides you with all the tools (in spreadsheet format) to help you actually run your handmade business finances.

It’s a powerful handmade businesses bookkeeping spreadsheet system, that’s easy to use:

• because it works more like software
• makes tax time so much easier
• doesn’t require you to spend HOURS with a calculator BEFORE you can get a monthly total
• and you can tweak the income, cost of goods sold, overhead expense categories to fit your business

It keeps your important spreadsheets grouped together in one place so you can focus on the task at hand without having 15 different spreadsheets open at once.

• Want to enter your income & expenses?
  Just open the bookkeeping spreadsheet
• Need to update your materials stash?
  Open up the materials inventory spreadsheet
• Did you make or sell a finished item?
  Just open up the finished items inventory spreadsheet