How to allocate business overhead per product or order

Build a list of costs that continue between orders

Start with recurring costs such as business software, insurance, workspace and other expenses that do not arise solely from one sale. Choose a period, usually the month for an initial review, and convert costs to that same period consistently.

Keep direct order costs out of this list when they already appear in the product calculation. Product materials, postage and per-sale fees normally have their own lines. A fixed marketplace subscription may sit in overhead while its per-order fee belongs with the sale.

Choose an allocation that explains the work

Dividing overhead equally across expected orders is simple. It can be useful when the orders are similar. If some products use much more making time or space, a time-based or another documented allocation may make the comparison more informative.

Write down the basis so you can repeat the review. The allocation changes how costs are attributed to products; it does not change the total bill. Avoid presenting it as a measured product expense when it is a planning assumption.

Check volume before fixing a per-order allowance

At £300 overhead per month, 100 orders implies £3 per order. Fifty orders implies £6, and 200 implies £1.50. Use a realistic expected volume and test a lower case. A price that works only with a permanently full order book deserves a closer look.

The product tool shows an operating estimate after the overhead allowance entered. Its target contribution price still refers to contribution before general overhead. If you want overhead included in a price target, account for the chosen allowance in the cost basis consistently and avoid subtracting it a second time.

Before you use the result

• Choose one review period.
• Separate recurring and direct order costs.
• State the allocation basis.
• Test lower expected volume.
• Keep allocations and whole-business totals distinguishable.

Common questions