Fixed cost

Published Thursday 23 July 2026

Table of contents

• What is a fixed cost?
• Examples of fixed costs
• Fixed costs vs variable costs
• How to calculate fixed costs
• Why fixed costs matter
• How to manage fixed costs
• Simplify your business costs with Xero
• FAQs on fixed costs
• Related terms
• Learn more about fixed costs

Key takeaways

• A fixed cost stays the same no matter how much you produce or sell. Rent and insurance are common examples.
• Fixed costs are the opposite of variable costs, which rise and fall with your output.
• To find your total fixed costs, subtract your total variable costs from your total costs.
• Fixed costs are predictable, which makes them easy to budget for and useful when you work out your break-even point.

What is a fixed cost?

A fixed cost is an expense that stays the same regardless of how much your business produces or sells. It's the opposite of a variable cost, which changes with your level of output.

Because the amount doesn't shift month to month, you pay the same whether sales are busy or slow. Rent is a good example: you owe the same figure whether you sell 10 items or 10,000.

Fixed costs are sometimes called overheads, since they keep running in the background whatever your business does day to day.

Examples of fixed costs

Most businesses carry a handful of fixed costs that show up on the books at the same rate each period. Common examples include:

• rent or lease of premises
• municipal and property tax
• insurance
• equipment leases
• salaried, permanent wages
• web hosting and development

Some costs sit in between. Utilities and some labour can be semi-variable, meaning they have a fixed base that goes up when you're busier.

Fixed costs vs variable costs

The difference comes down to whether a cost moves with your output. A fixed cost stays flat, while a variable cost goes up as you produce or sell more and down as you slow.

Variable costs are tied directly to activity, so they scale with each sale or unit you make. Common examples include:

• cost of sales
• marketing and sales activity
• transaction fees

A cost is either fixed or variable, not both. Sorting your costs into the two groups is the first step to understanding how your spending behaves.

How to calculate fixed costs

You can work out your fixed costs from figures you already track. Start with your total costs, then take out anything that changes with output.

The formula is: total fixed costs = total costs minus total variable costs. Add up every expense for the period, subtract your variable costs, and what's left is your fixed costs.

You can also break this down per unit. Fixed cost per unit = total fixed costs divided by the number of units produced. Because the total stays the same, the fixed cost per unit falls as you produce more, which is why higher output often lowers your cost per item.

Why fixed costs matter

Fixed costs shape how much you need to sell to cover your spending. Knowing them helps you plan with confidence.

Because they're predictable, fixed costs are easy to budget for from one period to the next. The higher they are, the more you have to sell to break even, so keeping them in check gives you more room to turn a profit.

How to manage fixed costs

Fixed costs feel set, but many of them are open to change once you take a closer look. A regular review can free up cash without touching your day-to-day sales.

• Review your recurring contracts and subscriptions for anything you no longer use
• Renegotiate leases and insurance when they come up for renewal
• Track your costs in one place so you can spot where money goes

It also helps to keep an eye on your overheads as a whole, so a small saving in one area can add up across the year.

Simplify your business costs with Xero

When your fixed costs sit alongside the rest of your finances, they're easier to see, budget for, and trim. Xero brings your costs together in one place so you can track them without the manual admin, and you can get one month free to try it out.

FAQs on fixed costs

Here are answers to some frequently asked questions about fixed costs.

Is rent a fixed cost?

Yes, rent is one of the most common fixed costs. You pay the same amount each period no matter how much you sell.

Are salaries a fixed cost?

Salaried, permanent wages are usually a fixed cost because the pay stays the same regardless of output. Wages tied to hours or piecework tend to behave as variable or semi-variable costs.

What is the difference between fixed and variable costs?

A fixed cost stays flat whatever your output, while a variable cost rises and falls with how much you produce or sell. Any given cost is one or the other, not both.

Can a fixed cost change over time?

Yes, a fixed cost can change when a lease, contract, or insurance premium is renewed or renegotiated. It's still fixed as long as the amount doesn't move with your level of output.

Related terms

• Overhead
• Operating expense
• Cost of sales
• Break-even point

Learn more about fixed costs

• Business cost saving ideas
• Managing overhead costs
• Small business expenses