What are examples of indirect costs?

Common examples include shared infrastructure like multi-team Kubernetes clusters, observability and security tooling, staging and test environments, shared data warehouses, and AI inference consumed across many features. In traditional accounting, rent, utilities, and administrative salaries are the classic cases. All support the business without belonging to one product or customer.

What is the difference between direct and indirect costs?

Direct costs can be traced to delivering a specific product, feature, or customer, such as compute for one customer's environment. Indirect costs support operations across many teams and can't be assigned to a single driver. Both belong in total cost of goods sold, and both shape real margins.

What is an example of an indirect expense?

A shared logging system is a clear example. Every product team depends on it, yet no single feature or customer causes the expense. A company-wide LLM subscription that powers several features works the same way: essential, shared, and invisible on a per-product basis until it is allocated.

Is AI spend a direct or indirect cost?

It can be either, and the ambiguity is the trap. A dedicated model endpoint serving one feature is a direct cost. A shared LLM subscription or GPU inference cluster consumed by many features is indirect, and it is the faster-growing kind. With Gartner projecting that cloud AI infrastructure spending on inference will exceed training in 2026, most organizations should treat AI spend as a shared cost pool by default.

How do you allocate indirect costs?

Group them into cost pools, then distribute each pool using a fair basis such as compute hours, API calls, tokens consumed, or GPU-hours. Start with showback so teams see their share, then evolve to chargeback as maturity grows. Automation matters because manual allocation can't keep pace with usage-metered spend.

What is the difference between overhead and indirect costs?

Overhead is the accounting term for indirect costs that support general operations, such as rent, utilities, and administration. The terms overlap heavily in practice: all overhead is indirect, though some indirect costs, like shared cloud infrastructure serving revenue products, sit closer to cost of goods sold than to general overhead. Cloud businesses typically manage both under one allocation model.

How often should you review your cost allocation model?

At least quarterly. Architectures evolve, tags drift, and new shared services, especially AI services, appear constantly. A quarterly review keeps cost pools and allocation bases aligned with how the business actually operates, so pricing and budgeting decisions rest on current numbers rather than last year's assumptions.

Business And Finance Archives

Featured

May 28, 2026

AI spend is exploding. Most companies cannot prove ROI.

The financial control plane for AI is here. Every AI dollar traced to the outcome it produced.

Indirect costs in 2026: AI spend is the new overhead (and how to allocate it)

Business And Finance

September 3, 2026

Indirect costs in 2026: AI spend is the new overhead (and how to allocate it)

AI budgeting: how to plan and forecast AI spend

AI ROI Business And Finance

August 13, 2026

AI budgeting: how to plan and forecast AI spend

AI Business And Finance

August 12, 2026

How to build the business case for AI

Pentagon-shaped org charts are coming. Intellectually curious leaders will get a head start.

AI Business And Finance

August 11, 2026

Pentagon-shaped org charts are coming. Intellectually curious leaders will get a head start.

AI Isn't a black box. It's Pandora's Box.

AI Business And Finance

August 6, 2026

AI isn’t a black box. It’s Pandora’s Box.

Isometric illustration of a laptop showing financial charts with a magnifying glass, a report, and stacks of coins — financial planning and analysis (FP&A) in the AI spend era.

Business And Finance

July 31, 2026

What is FP&A? Financial planning and analysis in the AI spend era

Report

Finance needs to prove AI’s return: CloudZero report

260 senior finance leaders (more than half CFOs) told us why the speed of seeing AI spend, not the size of it, separates who pulls ahead on AI from who gets burned.

Read the report