What They Are and Why They Matter in Your Handmade Business
Running a handmade business comes with a whole lot of heart ……. but also a whole lot of costs that quietly nibble away at your profit if you’re not paying attention.
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, and the supplies that go directly into making or selling their product.
But OVERHEAD? That’s where things get fuzzy..
Overhead expenses are 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. hey may not be stitched, glued, poured, painted, printed, or crocheted into one specific item, but they still need to be paid for somehow.
And if those costs aren’t built into your pricing, they usually come straight out of your profit.
In the Accounting Speak series, we’ve already looked at Income and Cost of Goods Sold. Now we’re looking at the regular business expenses that show up on the Profit & Loss side of your bookkeeping.
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 become part of one specific finished product.
They’re not stitched, glued, cast, crocheted, printed, poured, painted, or woven into one specific item.
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, platform fees, and other selling fees
- Shopify or pattern-selling monthly platform fees
- Small product photography props or equipment. Larger equipment may belong in your Assets instead, depending on cost and how you track it.
- Gas + mileage for business errands
- Business insurance
- A portion of your home utilities (if you work from home)
- Office supplies
- Bank fees
- Bookkeeping software
- Office coffee, if it’s truly for your business workspace and not just your personal caffeine survival plan.
Many of these are legitimate business expenses that may be deductible or included on your Schedule C here in the U.S., depending on your business and tax situation.
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:
- Extra packaging or shop supplies that aren’t tied to one specific product
- Gas and mileage for business errands
- Office supplies
- Platform transaction fees
- Replacement tools, mats, blades, needles, brushes, or other small-use supplies
- Craft fair booth supplies that vary by event
The important thing is not to get stuck trying to make every category perfect. The goal is to understand which costs stay pretty steady and which ones rise and fall as your business gets busier.
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 expect to 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
This might include website hosting, software subscriptions, craft fair booth fees, business insurance, mileage, office supplies, bookkeeping tools, and the business portion of your home internet or utilities.
Now you just need to spread this cost across your products so every sale covers its 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
Overhead cost per hour × number of hours to make the item = overhead amount to include in your pricing. to make the item = overhead added to that item
Why 8,760? Because that’s the total number of hours in a year. This gives you a simple hourly overhead rate you can work into your pricing calculations.
EXAMPLE:
If your annual overhead is $4,380:
$4,380 ÷ 8,760 = $0.50 per hour
If it takes you 3 hours to make an item:
$0.50 × 3 hours = $1.50 of overhead
That $1.50 gets included in your pricing calculation along with your materials, labor, fees, profit, and other product costs.
This is the same kind of overhead logic built into the Handmade Product Pricing & COGS Calculator. The goal is to stop pricing from materials alone and start including the background costs that help keep your business running.
OPTION B: Per-Item Overhead Rate
Great if your products are fairly similar or you want an easy plug-in number to start with.
This works better if you sell products that are roughly similar in size, price, and time involved. If you sell $8 stitch markers and $185 handmade blankets, one flat overhead amount per item may not give you the most accurate pricing.
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
may count toward your business overhead and can be included when calculating your Fair Hourly Wage.
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.
For tax purposes, this is where you want guidance from your tax pro. For pricing purposes, you can still use these numbers to better understand what it costs to run your business from home.
NOTE: Every CPA or tax preparer has their own view on Business Use of Home. Even if they do not recommend taking it as a tax deduction, you can still calculate what it costs to run your business from home and use that number in your pricing decisions.
Why Getting Overhead Right Actually Matters
On your Profit & Loss Report, overhead expenses help explain what happened to your money after the sale came in and after your product costs were accounted for.
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 😂
This is also why handmade business bookkeeping can’t always be shoved into one tiny generic spreadsheet.
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 usually 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.
That does not mean you need to make your bookkeeping harder than it has to be. It means your system needs to match the way a handmade business actually works.
One Tool That Make This Way Easier
The 10-Minute Bookkeeper is a handmade business bookkeeping spreadsheet system designed to keep your income, expenses, COGS, inventory, sales tax, owner contributions, owner draws, and other moving parts organized in one place.
It works more like a system than a random spreadsheet because the pieces are meant to work together.
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
And because overhead expense categories are part of the setup, you’re not trying to remember where all those sneaky background costs went three months later.
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
If you'd rather be working with yarn, fabric, paint or clay than deal with a pile of receipts or bookkeeping spreadsheets, you're in the right place.
I help you get a handle on your numbers, make sense of what's coming in and going out, and actually feel confident running your business -- without accountant-speak or guilt.
👉 Want help figuring out your bookkeeping (without overcomplicating it)? Join the free bookkeeping community.
I am a coach/educator, not your bookkeeper or CPA. This information is for educational purposes, NOT financial or tax advice.
The last tip was genius! I feel as if I’ve had the map all along, but you gave me the final destination. Thank you so much!!
I’m so glad you liked that last tip!
Great artical Nsncy! I really like how you break all this down into bit sized pieces for us to digest🤗
Hi Novella 🙂
I’m so glad you liked this. Bookkeeping is overwhelming – there are so many strange terms. I feel it’s important to keep things in the bite-size pieces you mention so you don’t get overwhelmed.