Indirect Costs
What is indirect costs?
Indirect costs are expenses that support the business as a whole instead of a single project or client, such as rent, management salaries, insurance, and general software. They are also called overhead.
Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer that separates direct and indirect costs in the books, so overhead can be tracked and allocated reliably.
How to manage them
- Record indirect costs in their own accounts, separate from direct costs
- Review them monthly against the budget
- Allocate them to projects or services with a consistent method, see cost allocation
Why it matters for service firms
Indirect costs are usually the part of the cost structure that grows without anyone deciding it should. Tracking them as a share of revenue gives owners an early signal when overhead is outpacing the work.
Frequently asked questions
What is the difference between direct and indirect costs?
Direct costs can be traced to a specific project or client, such as delivery labor or a subcontractor. Indirect costs benefit the whole business and cannot be traced to one project. The distinction drives pricing and margin analysis.
How can a firm control indirect costs?
Review each line against its purpose, watch for subscriptions that quietly accumulate, and compare costs with revenue over time. Growth in indirect costs that outpaces revenue is a signal to investigate.
Related terms and guides: direct costs, overhead rate, overhead allocation, cost structure, and operating expenses.