Fixed cost
Learn what fixed costs are, see examples for Indonesian businesses, and find out how to calculate and manage them.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Fixed costs stay the same over a set period, however much you produce or sell
- Rent, permanent staff salaries, insurance premiums and loan repayments are common fixed costs for small businesses in Indonesia
- Your fixed cost per unit is total fixed costs divided by units, so it falls as output rises
- Your fixed costs set how much you need to sell to break even, which shapes your budget and prices
What is a fixed cost?
A fixed cost is a business expense that stays the same over a set period, however much you produce or sell. Fixed costs are also called overhead costs or indirect costs.
Picture a small bakery in Bandung that pays Rp15.000.000 rent each month. Whether it sells 200 cakes or 2.000, the rent stays the same, so it’s a fixed cost.
“Fixed” describes how a cost behaves during a period. The amount can still change when you renew a lease, hire a new staff member or refinance a loan.
Key characteristics of fixed costs
Fixed costs share a handful of traits that set them apart from other business costs. Use these traits to spot the fixed costs in your own books.
- Stay the same when your output rises or falls in the short term
- Fall due even in a month with zero sales
- Follow a predictable pattern, so they’re easy to plan for
- Hold steady within a relevant range, the level of activity your current space, staff and equipment can handle
- Shrink per unit as output rises, because the same total is spread across more units
The relevant range has limits. Your bakery’s rent holds steady while one shop meets demand. Opening a second outlet moves you into a new range with higher fixed costs.
Examples of fixed costs
Most small businesses in Indonesia pay a similar set of fixed costs each month or year. These are the ones you’re most likely to see in your books.
- Rent or lease payments for an office, shop house (ruko) or warehouse
- Insurance premiums for property and vehicles
- Salaries for permanent staff on a set monthly wage
- Employer contributions to Badan Penyelenggara Jaminan Sosial (BPJS) Ketenagakerjaan and BPJS Kesehatan for permanent staff, paid monthly
- Loan repayments on a fixed schedule
- Software subscriptions, such as accounting or point-of-sale tools, billed monthly or annually
- Depreciation, which spreads the cost of equipment or vehicles across their useful life
- Land and building tax (Pajak Bumi dan Bangunan, PBB), billed annually on land and buildings your business owns
Types of fixed costs
Fixed costs fall into two groups, based on how easily you can change them. Knowing which group a cost belongs to shows you where you have room to cut.
Committed fixed costs
Committed fixed costs come from long-term decisions and contracts that are hard to change quickly. Examples include a multi-year lease on your ruko, loan repayments, depreciation on equipment and annual insurance policies. Once you’ve signed up, you’ll keep paying these costs for months or years.
Discretionary fixed costs
Discretionary fixed costs are amounts you set each budget period, and you can adjust them at the next review. Examples include an advertising retainer, staff training, event sponsorships and consultancy fees. They stay fixed within the period, and they’re the first place to look when you need to reduce spending.
Fixed costs vs variable costs
Fixed costs stay the same whatever your sales volume, while variable costs rise and fall with how much you produce or sell. Ingredients, packaging, delivery charges and sales commissions are typical variable costs, and they often make up much of your cost of sales.
A quick test helps you tell them apart: if you sold nothing this month, which costs would still be due? Rent, salaries and loan repayments would, so they’re fixed. Flour and packaging wouldn’t, so they’re variable.
Some costs sit in between. Mixed or semi-variable costs have a fixed base plus a usage charge. A phone plan with extra data fees and utilities with a monthly fee plus metered usage are common examples.
Step costs are another in-between case. They stay fixed up to a certain level of activity, then jump to a new level. For example, your costs step up when orders exceed one oven and you lease a second.
How to calculate fixed costs
You can work out your fixed costs in four steps, using figures you already have in your accounts. Choose a period first, such as a month, quarter or year.
- List your expenses for the period from your profit and loss statement
- Separate fixed costs from variable costs, splitting any mixed costs into their fixed and variable parts
- Add up the fixed items to get your total fixed costs
- Divide total fixed costs by the number of units you produced or sold to find your average fixed cost per unit
Fixed cost formulas
The formulas below cover most fixed cost calculations. Use the same period for every figure so your results line up.
Total fixed costs = sum of all fixed expenses
Average fixed cost per unit = total fixed costs ÷ number of units
Total cost = total fixed costs + total variable costs
The total cost formula also works in reverse. If you know your total costs and your fixed costs, subtract one from the other to find your variable costs.
Fixed cost example in Rupiah
Say your bakery pays these fixed costs each month: rent Rp15.000.000, salaries Rp40.000.000, insurance Rp2.000.000 and software Rp1.000.000. Your total fixed costs are Rp58.000.000 per month.
If you sell 1.000 cakes in a month, your average fixed cost is Rp58.000.000 ÷ 1.000 = Rp58.000 per cake. Sell 2.000 cakes and it drops to Rp29.000 per cake, because the same fixed costs are spread across twice as many sales.
Why fixed costs matter for your business
Your fixed costs set the baseline your sales need to cover each month. That baseline shapes how you budget and how you price.
Budgeting and cash flow
Because fixed costs are predictable, they’re the starting point for any budget. Knowing your bakery needs Rp58.000.000 each month before it makes a profit helps you plan your cash flow and keep a buffer for quieter months. Set money aside each month for annual bills such as PBB, so they don’t strain your cash when they fall due.
Break-even analysis
Your break-even point is the number of units you need to sell to cover all your costs. Here’s the formula:
Break-even units = total fixed costs ÷ (price per unit − variable cost per unit)
Say your bakery sells each cake for Rp100.000 and the variable cost is Rp42.000, so each sale contributes Rp58.000 towards fixed costs. Rp58.000.000 ÷ Rp58.000 = 1.000 cakes a month to break even, and every cake after that adds to profit.
Pricing decisions
The gap between your price and variable cost per unit is your contribution margin. It shows how much each sale adds towards fixed costs and then profit, so you can test a new price before you change it. To see how the cost of each extra unit behaves, you can also calculate marginal cost.
How to manage fixed costs
Fixed costs are predictable, and they’re still worth reviewing. Any saving you make repeats every month, so it adds up over a year.
Review expenses regularly
Go through your fixed costs every quarter and check that each one still earns its place. Look for subscriptions nobody uses, overlapping insurance cover and contracts that renew automatically. Running financial reports each month makes these items easier to spot.
Negotiate with vendors
Many fixed costs are open to negotiation, especially when a contract is up for renewal. Ask your landlord about a lower monthly rate in exchange for a longer lease, or ask suppliers for a discount on annual payment. Every rupiah you save on fixed costs goes straight to your bottom line, which is one of the simplest ways to increase profits.
Consolidate tools and services
Paying for several apps that each do one job adds up quickly. Bring invoicing, expense tracking and reporting into one accounting platform to cut subscription costs and avoid entering the same data twice.
Consider flexible arrangements
Some fixed costs can shift closer to variable costs. A co-working space, a shared commercial kitchen or freelance help means you pay more only when business picks up. The cost per unit may be higher, and in return you get more room to adjust in a slow month.
Track your fixed costs with Xero
Once you know your fixed costs, you can budget with confidence and see exactly how much you need to sell each month. Xero helps you track every expense and set up repeating bills for rent and subscriptions. Reports then show where your money goes, so you can spot savings sooner.
Keep your costs organised in one place when you sign up and get one month free.
FAQs on fixed costs
Here are answers to common questions about fixed costs.
Can a fixed cost become a variable cost?
Yes, when you change the arrangement behind it. Swapping a monthly retainer for pay-per-job work, or a salaried sales role for commission-based pay, turns a fixed cost into a variable one.
What are stepped fixed costs?
Stepped fixed costs stay flat within a range of activity, then jump when you pass a capacity limit, such as hiring a second baker. Before you take the step, check that the extra sales will cover the new, higher fixed cost.
Do fixed costs change with production levels?
Total fixed costs hold steady within your relevant range, while fixed cost per unit falls as output rises and climbs as output drops. That’s why a quiet month can squeeze profit even when your total fixed costs stay put.
How do fixed costs affect profit margins?
When fixed costs are high and variable costs are low, your profit margin grows quickly once sales pass break-even. It also shrinks quickly when sales fall, so keep a cash buffer.
What’s the difference between direct and indirect costs?
Direct costs, such as flour and packaging, belong to a specific product and feed into your gross profit margin. Indirect costs like rent support the whole business and are usually fixed, though a direct cost such as a machine lease can be fixed too.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.