Overhead Allocation Quickstart
Quick guide: overhead allocation quickstart.
Last updated: January 2, 2026 • Public quick guide
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Overhead allocation is how you assign shared costs (utilities, rent, software) to your output so your unit economics aren’t fantasy.
- Start simple: allocate overhead by time window (monthly) and by output (sellable units).
- Don’t over-engineer—consistency beats precision early.
- Review quarterly and adjust the method only if it changes decisions.
Decision path
- If overhead is a small percentage, simple allocation is enough.
- If overhead is large, you need utilization improvements or cost cuts.
- If you’re comparing SKUs, allocate overhead consistently across them.
- List overhead categories: rent, utilities, subscriptions, insurance, admin time.
- Pick a time window (month) and total the overhead.
- Choose an allocation base: sellable grams, sellable units, or batch count.
- Divide overhead by the base to get overhead per unit.
- Add overhead per unit into your cost per unit/gram.
- Recalculate quarterly.
Overhead isn’t ‘evil’—it’s the cost of being real. Allocate it so you can price like an operator.
Quick example
Allocation methods (pick one):
| Method | Best when | Watch-out |
|---|---|---|
| Per unit | One SKU dominates | Skews if SKUs vary wildly. |
| Per gram | Output is measured consistently | Must use sellable grams. |
| Per batch | Batches are standardized | Bad if batch sizes vary. |
Choose a method you can repeat. The best method is the one you actually maintain.
- Treating overhead as zero until it wrecks margin.
- Switching allocation methods monthly (no comparability).
- Allocating using harvested output instead of sellable output.
- Allocating overhead to only some products (bias).
- Overcomplicating early (you stop tracking).
FAQ
Is electricity overhead or COGS?
It’s often overhead unless you can directly tie it to production per unit. Pick a consistent rule.
Do I allocate my own salary?
If you want true unit economics, yes—at least as owner labor time cost.
How accurate does this need to be?
Accurate enough to decide. Start simple, improve over time.
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