Fixed and variable costs
Overheads can be categorised into either fixed or variable costs. It is important to understand the distinction between these categories as this will help you understand where you have the opportunity to reduce costs and improve profitability.
Rental expense is a typical example of a fixed business cost, whereas direct labour would be an example of a variable cost. Variable cost will typically vary in accordance with production levels and or business activity.
There are opportunities to reduce both types of overheads, however, it is often easier to reduce variable overheads, for instance by cancelling subscriptions or switching to cheaper online versus in-person training. It is important to manage both your overheads and your direct costs to maintain your margins over time.