In uncertain economic times, overhead costs can be the silent killer of profitability. For business owners navigating today's volatile economic landscape, these persistent expenses represent more than just line items—they're critical factors that can determine your company's financial sustainability and growth potential.
However, reducing overhead doesn’t necessarily have to mean layoffs, slashing benefits, or compromising quality. In fact, smart overhead reduction starts with strategic decisions—evaluating how your business operates and pinpointing inefficiencies that are weighing you down.
Here’s a comprehensive guide on how to reduce overhead costs while building a more resilient business model.
Table of contents
- What Are Overhead Costs?
- How Overhead Grows
- How to Understand and Address Overhead
- Ways to Reduce Small Business Overhead
- Tackle Admin Needs & Reduce Overhead with Prialto
- Conclusion
What Are Overhead Costs?
Overhead costs are the ongoing business expenses not directly tied to producing a product or service. Think of them as the “cost of staying in business,” whether you’re actively making sales or not.
Unlike direct costs—such as materials or labor specific to delivering a product—overhead keeps the lights on, but doesn’t directly generate revenue. And that’s why keeping it in check is so important.
Common overhead expenses include:
- Rent and utilities
- Office supplies and equipment
- Administrative salaries
- Insurance premiums
- Software subscriptions
- Marketing expenses
- Professional services (accounting, legal)
- Travel expenses
- Training and development costs
For many small businesses, these seemingly necessary expenses can quietly accumulate until they represent a substantial portion of operating costs—often without proportionate returns on investment.
How Overhead Grows
At first, a little overhead is a necessary investment. A bigger office, better systems, or more team members can all contribute to higher revenue. But overhead has a sneaky way of ballooning as you grow, often outpacing your returns. A few new software subscriptions here, expanded office space there, and gradually, profit margins begin to shrink.
It’s not always bad—overhead growth can indicate a maturing company—but it becomes problematic when:
- Your systems don’t scale efficiently
- Redundant tools and roles creep in
- Revenue stagnates while costs continue to rise
The challenge many businesses face is that overhead costs frequently don't scale efficiently. A company might double its revenue, but its administrative expenses triple because existing systems can't handle the increased volume.
How to Understand and Address Overhead
Reducing overhead begins with understanding it. You can’t fix what you haven’t identified.
Tackling overhead requires a systematic approach:
1. Track Down All Your Costs
Start with a complete audit of your expenses. Don’t just check your P&L statement—dig into credit card bills, subscription renewals, and even employee expense reports. Include every recurring cost, no matter how small.
It might be tedious, but this is how you spot the “hidden” costs that pile up: unused software licenses, legacy vendor contracts, or expensive administrative processes that you could streamline.
Need help wrangling your back-office operations? Our guide to business process outsourcing outlines how to free up internal bandwidth and reduce costs with expert support.
2. Identify Your Ideal Overhead Number
Simply saying you want to "reduce overhead" isn't specific enough to drive meaningful action. Reduce overhead by how much? To find that number, you need to first determine your target overhead.
A healthy overhead benchmark varies by industry, but generally speaking:
- Strong companies aim for overhead to be less than 35% of total revenue
- Profit margins between 10-20% are a solid target for most small businesses
The formula is straightforward: if your revenue is $100,000 monthly, your overhead shouldn't exceed $35,000, allowing for direct costs and a healthy profit margin.
3. Identify Your Gap
Once you understand your current overhead and your target, you can calculate the gap—the amount you need to reduce to reach your goals.
For example, if your monthly revenue is $100,000, your target overhead is $35,000, but your actual overhead is $50,000, you need to find $15,000 in monthly savings.
This concrete number gives you a clear target and helps you determine how aggressive your cost-cutting measures need to be.
4. Take Action
Now that you understand how much you’re currently spending—and how much less you should be spending—it's time to identify specific overhead items to reduce or eliminate.
Here are some common areas where businesses can effectively lower their overhead costs.
Ways to Reduce Small Business Overhead
Rent
Office rent is often one of the largest recurring expenses for small businesses. But the rise of remote and hybrid work means you may not need as much space—or any at all.
Ways to reduce rent overhead:
- Downsize to a smaller office
- Sublease unused space
- Renegotiate your lease
- Move to a co-working or shared office model
- Shift to fully remote operations
Not sure how to transition to a remote-friendly model? Explore how virtual teams thrive in remote work systems.
Supplies
The costs of equipping and maintaining workspaces add up quickly. Consider the following strategies:
- Negotiate bulk purchase discounts with suppliers
- Implement stricter controls on supply usage
- Switch to lower-cost vendors where quality isn't critical
- Go paperless whenever possible
- Consider refurbished equipment rather than new
- Audit recurring supply orders to eliminate unused items
- Buy in bulk or set up recurring supplier discounts
- Audit software tools quarterly for usage and redundancy
Speaking of software, your small business tech stack might be costing you more than it should.
Administration
Administrative staff represent a significant overhead cost for most businesses. While layoffs should generally be a last resort, there are other approaches to reducing administrative overhead to consider:
- Automate routine administrative tasks
- Cross-train employees to handle multiple functions
- Consider outsourcing vs. hiring for certain roles
- Evaluate the benefits of offshoring vs. outsourcing for certain operations
- Utilize virtual assistants for administrative support
Many businesses find that strategic outsourcing provides the perfect balance—essential administrative functions are covered without the overhead associated with full-time employees.
Technology
In today's digital business environment, technology expenses can quickly spiral out of control. Take these steps to optimize your tech spending:
- Audit your current small business tech stack to identify redundancies
- Consolidate overlapping tools and platforms across teams
- Centralize your systems where you can
- Negotiate better rates with vendors (many offer discounts for annual payments)
- Consider open-source alternatives to premium software
- Implement tiered access (not everyone needs the premium version)
- Regularly review subscription services and cancel unused ones
Technology should increase efficiency and reduce costs—not become a cost center itself. Regular reviews of your tech stack can prevent the common problem of "subscription creep."
Automation
Humans are expensive; machines are efficient. This simple truth makes automation one of your most powerful allies in the battle against rising overhead costs. While your team's creativity and decision-making abilities are irreplaceable, many routine tasks draining their time (and your budget) can be handled through strategic automation.
Think beyond simple tool implementation—effective automation redesigns entire workflows. Start by mapping your operational bottlenecks: Where do projects consistently stall? Which tasks consume disproportionate staff hours? The prime candidates typically include:
- Customer service inquiries through intelligent chatbots and comprehensive knowledge bases
- Financial operations like invoicing, payment processing, and expense tracking
- Inventory management systems that predict needs before shortages occur
- Marketing campaigns via scheduled email sequences and content distribution
- Social media presence through planned content calendars and posting tools
- Performance analytics with automated data collection and report generation
- New employee integration through standardized digital onboarding sequences
The initial investment in automation tools often gives business owners pause. However, the math typically favors action—many systems deliver full ROI within months, not years. More importantly, automation frees your talented team to focus on high-value activities that directly generate revenue rather than maintaining operational overhead.
Tackle Admin Needs & Reduce Overhead with Prialto
For many small businesses, administrative support presents a particular challenge. You need reliable admin help to grow, but traditional hiring comes with substantial overhead costs—salary, benefits, training, workspace, equipment, and more.
At Prialto, we help small businesses do more with less. Our managed virtual assistant service gives you dedicated support from trained professionals—without the cost and complexity of hiring in-house.
By outsourcing your administrative needs to us, you can:
- Access skilled administrative support without the overhead of traditional hiring
- Scale support hours up or down based on business needs
- Eliminate costs associated with employee turnover and training
- Reduce office space requirements
- Focus leadership time on core business functions rather than administrative management
Our managed virtual assistant service is supported by engagement managers and documentation systems, so your processes are always running—regardless of time zone or turnover. You don’t just get a single assistant; you get an entire team committed to helping your business run smoothly.
Read more about how virtual assistants help small businesses.
Conclusion
Reducing overhead is one of the most effective ways to boost your bottom line—especially when growth is uncertain. But it’s not just about slashing costs. It’s about building a lean, efficient operation that’s prepared to weather tough times and thrive when the economy rebounds.
By tracking your costs, setting measurable goals, and taking strategic action, you can lower overhead without losing the capacity to grow.
And when you're ready to outsource some of that administrative weight, Prialto is here to help.
Ready to start reducing your administrative overhead with expert virtual assistants? Set up a consultation call with Prialto today to learn how our services can help your business thrive with lower overhead costs.