What you may not realize as an online business owner, is that you're being weighed down every day by this thing called overhead. So what is overhead? It's all of your indirect costs: the cost to keep the lights on, the cost to operate. They're required for you to stay in business but not necessarily directly related to the thing that you sell.

If you have a physical location, it's probably rent, utilities, equipment, administrative items, office supplies, cleaning, etc.

Why does it matter? Heavy overhead is the number one killer of businesses. If your overhead is too heavy, you may have serious cash flow issues and find yourself unable to pay your bills and operating costs.

So how do you know if your overhead is too heavy? Take a look at the relation of your net margin to your gross margin. It's really easy to increase overhead but if you can't justify that increase with a subsequent increase in income or decrease of other costs, you should hold off.

* Related episodes:

206. What is EBITDA?

213. Creating a Cost-effective Agency Model with Paul Seaton

217. Designing Systems to Scale with Ernesto Mandowsky

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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.