What is Fixed Costs?

Fixed costs are business expenses that do not change with the level of output or sales in the short term — they must be paid whether you sell zero units or thousands.

Rent, salaried staff, software subscriptions, insurance and accounting fees are all classic fixed costs. They form the baseline that revenue must cover before any profit can emerge. The higher your fixed costs, the higher your break-even point and the more vulnerable you are to demand swings.

Fixed costs are only fixed in the short run. Over months and years, leases end, headcount adjusts and software contracts can be renegotiated. Long-term, almost every cost is variable — but quarterly planning must treat them as fixed.

Reducing fixed costs is the most reliable way to lower business risk. Moving from a leased office to remote work, switching from salaried developers to contractors, or renegotiating a multi-year SaaS deal can all shave thousands off break-even.

Example

A small consultancy with CHF 4,000 office rent, CHF 2,000 admin software and one CHF 6,000/month assistant has fixed costs of CHF 12,000/month — its first CHF 12,000 of contribution every month covers nothing but the lights.

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Related terms

Variable Costs

Variable costs are business expenses that scale directly with output or sales — every additional unit produced or delivered adds an incremental cost.

Break-Even Point

The break-even point is the sales volume at which total revenue exactly covers total costs, producing neither profit nor loss; every unit sold beyond it generates profit.

EBITDA

EBITDA stands for earnings before interest, taxes, depreciation and amortization — a measure of a company's core operating profitability that removes financing and accounting effects.

VAT

Value-added tax (VAT) is a consumption tax applied at every stage of production and distribution, ultimately paid by the final consumer and collected by businesses on behalf of the state.

Frequently asked questions

Are utilities fixed or variable?+

Base subscription is fixed; consumption (kWh used) is variable. In practice utilities are often modelled as semi-variable.

Are taxes fixed costs?+

Income taxes apply to profit, so they are not fixed. Some flat fees (business registration) are fixed.

Why do investors look at the ratio of fixed to variable costs?+

A high fixed-cost ratio means high operational leverage — small revenue changes produce big profit swings, in both directions.