Fixed costs are expenses that stay the same regardless of how much you produce or sell — the bills that arrive whether the month was a record or a disaster. They are the denominator of business risk: the higher your fixed costs, the more you must sell before the first dollar of profit appears.
20 fixed cost examples
Premises: rent, property taxes, building insurance, security. People: salaried staff, management pay, benefits plans. Money & compliance: loan payments, insurance premiums, accounting and legal retainers, business licences. Operations: equipment leases, software subscriptions, base utilities, website hosting, franchise fees. Intangibles: depreciation, amortisation, advertising contracts, minimum-commitment supplier agreements.
The honest caveat: “fixed” has a range
Every fixed cost is fixed only within a range of activity. Double your volume and you may need a second warehouse — rent suddenly steps up. These step costs are where growing businesses get surprised: the P&L looks scalable right up until the next step. Salaries with overtime, or utilities with a usage component, are semi-variable — a fixed base plus a variable slice, worth splitting before any analysis.
Why the classification matters: break-even
Fixed costs ÷ contribution margin per unit = the volume you must sell to break even. Get the classification wrong and the break-even number lies to you. Run the relationship live:
The other half of this equation — what each sale contributes — is covered in Contribution & Contribution Margin, Explained Simply.
Fixed costs and operating leverage
High fixed costs cut both ways: past break-even, each extra sale is almost pure profit (airlines, software); below it, losses pile up just as fast. That amplification is operating leverage — the reason two companies with identical revenue can have wildly different risk profiles, and the first thing to check when a business promises that “profit will scale.”
Is salary a fixed cost?
Salaried pay is fixed; hourly wages that scale with production are variable; salaried-plus-overtime is semi-variable. Classify by behaviour, not by job title.
Are utilities fixed or variable?
Usually semi-variable: a fixed connection base plus usage that varies. Split the two parts for accurate break-even analysis.
Is depreciation a fixed cost?
Under straight-line, yes — the same charge each period regardless of output. Usage-based depreciation methods make it variable.
Can fixed costs change?
Yes — rent rises at renewal, insurance reprices annually. Fixed means insensitive to volume in the short run, not frozen forever.