Fixed cost
See what counts as a fixed cost, with Malaysian examples, and learn to calculate yours so you can price with confidence.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- A fixed cost stays the same each month whatever you sell, such as rent or insurance
- Total costs equal fixed costs plus variable costs, so splitting the two shows what it costs just to keep your doors open
- Knowing your fixed costs lets you find your break-even point and set prices that cover every expense
- Reviewing fixed costs regularly and renegotiating contracts helps you protect your profit and cash
What is a fixed cost?
A fixed cost is a business expense that stays the same however much you sell or produce. If your shop rent is RM4,000 a month, you pay RM4,000 whether you serve 50 customers or 500.
Fixed costs are also called overhead costs or indirect costs, because they keep the whole business running instead of tying to one product. They share a few traits:
- they stay constant as your output rises or falls, within a normal level of activity
- they’re predictable, so you can plan budgets around them
- they’re usually set by a contract, such as a lease or loan agreement
- they fall due even in months when you make no sales
“Fixed” describes how a cost behaves as sales change, so the amount itself can still move over time. Your rent might rise when you renew your lease, for example, and then stay fixed at the new rate.
Examples of fixed costs
Most small businesses pay a similar core set of these costs each month or year. Common examples include:
- rent or lease payments for your shop or office
- insurance premiums for business liability, fire and property cover
- salaries for permanent staff, paid at the same rate each month
- loan repayments on a fixed schedule
- software subscriptions, such as accounting and point-of-sale tools
- depreciation on equipment and vehicles
- quit rent (cukai tanah), collected once a year by the Land Office, and assessment tax (cukai taksiran), collected twice a year by your local council
The two property taxes apply if you own your premises, and EasyLaw Malaysia explains how these property taxes work.
The mix depends on your business model. A café carries high rent and kitchen equipment costs, while an online shop spends more on software and storage. A consultancy’s overheads are mostly salaries and professional insurance.
Fixed costs vs variable costs
Fixed costs stay the same as your sales change, while variable costs rise and fall with every sale. Variable costs include raw materials, packaging, shipping and sales commissions.
To tell them apart, ask whether you’d still pay the cost in a month with zero sales. If you would, it’s a fixed cost. Compared with variable costs, fixed costs:
- stay the same in total as you sell more
- cost less per unit as your output rises
- are mostly set by contracts, such as leases and loans
- still need paying in months with no sales
Together, the two make up everything you spend: total costs = fixed costs + variable costs.
Say your café has RM16,800 in monthly fixed costs and sells 2,000 set lunches. If ingredients and packaging cost RM8 a lunch, your variable costs are RM16,000 and your total costs are RM32,800.
Semi-variable and step-fixed costs
Some costs sit between fixed and variable, so they need a closer look. Semi-variable costs, also called mixed costs, have a fixed base plus a part that changes with use.
Your phone plan is one example: you pay a set monthly fee, plus extra charges if you go over your data allowance. Utilities work the same way, with a basic charge plus a usage charge.
Fixed costs also stay fixed only within a relevant range, which is the level of activity your current setup can handle. Past that point, you’ll need more space or equipment, and your fixed costs jump to a new level.
These jumps are called step-fixed costs, and AccountingTools explains how step costs behave. For example, if your stock grows beyond your storeroom, renting an extra storage unit adds a new fixed monthly cost.
How to calculate fixed costs
You can work out the total in four steps, using figures you already have. Once you know it, you can find the fixed cost of each unit you sell.
1. List all your business expenses
Start with every cost your business paid over a set period, such as a month. Pull the figures from your profit and loss statement, and convert yearly bills, like insurance or quit rent, into a monthly amount.
2. Separate fixed costs from variable costs
Sort each expense by asking whether you’d still pay it in a month with no sales. For semi-variable costs, put the fixed base in your fixed group and the usage charge in your variable group.
3. Add up your fixed costs
Add everything in your fixed group to get your total fixed costs. The formula is:
Total fixed costs = rent + insurance + salaries + loan repayments + subscriptions + other fixed expenses
For example, rent of RM4,000, insurance of RM500, salaries of RM12,000 and subscriptions of RM300 give total fixed costs of RM16,800 a month.
If you already know your total costs and variable costs, you can use this formula instead: total fixed costs = total costs – total variable costs. With the café figures, RM32,800 – RM16,000 = RM16,800.
4. Work out your fixed cost per unit
Divide your total fixed costs by the number of units you produce or sell in the same period. Fixed cost per unit = total fixed costs / number of units.
If you sell 2,000 units a month, your fixed cost per unit is RM16,800 / 2,000 = RM8.40. Selling 4,000 units would bring it down to RM4.20, which is why higher sales volume can lift your margins.
Why fixed costs matter for your business
Your fixed costs set the minimum your business needs to earn each month. Knowing that number helps you plan ahead and price with confidence.
Budgeting and predictability
Because these costs stay the same each month, they form the base of any budget. Once you know them, you can see how much of each month’s income is already committed.
Add them to a cash flow forecast so you can spot tight months ahead, such as when your yearly insurance or quit rent falls due.
Break-even analysis
Your break-even point is where your sales cover your total costs, so you make neither a profit nor a loss. The Corporate Finance Institute (CFI) sets out the standard break-even formula:
Break-even quantity = total fixed costs / (selling price per unit – variable cost per unit)
Say your fixed costs are RM16,800 a month, you sell each unit for RM20 and each unit costs RM8 to make. Each sale contributes RM12 towards those costs, so you break even at 1,400 units (RM16,800 / RM12).
The lower your fixed costs, the fewer units you need to sell before you make a profit. Every unit you sell above 1,400 adds to your margin of safety, the buffer between your actual sales and break-even.
Pricing decisions
Your prices need to cover variable costs and contribute towards fixed costs. The gap between your selling price and variable cost per unit is the contribution margin, which is RM12 in the example above.
Once sales pass break-even, that contribution becomes profit. Checking it against your target profit margin shows whether your prices are high enough.
How to manage fixed costs
These costs are predictable, but they add up, so they deserve the same attention as your day-to-day spending. You’ll find more cost-saving ideas in Xero’s guide, and these four steps are a good place to start.
Review your expenses regularly
Run a quarterly audit of every recurring bill and subscription. Look for tools your team rarely uses, contracts that renewed automatically and insurance cover that doesn’t match what your business does today.
Negotiate with vendors
Landlords and suppliers often have room to move, especially if you’ve been a reliable customer. Ask for a better rate at renewal, or offer a longer contract or upfront payment in exchange for a discount.
Consolidate tools and services
Several separate apps can cost more than one platform that handles the same jobs. Check for overlap across your software and service providers, then combine them where you can.
Consider flexible arrangements
Flexible options turn some fixed commitments into costs you can scale up or down. A co-working space or hot desk can replace a long office lease, and pay-as-you-go plans mean you pay only for what you use.
Keeping commitments flexible also eases pressure on your cash flow during quieter months.
Track your fixed costs with Xero
A clear view of your overheads gives you a firm base for setting budgets and prices. Xero helps you track every expense in one place, with bank feeds that bring in your transactions automatically.
Set up repeating bills for recurring costs like rent and subscriptions, then run reports to see where your money goes. Choose a plan and get one month free to see how Xero fits your business.
FAQs on fixed costs
These answers cover common questions about how fixed costs behave in practice.
Can a fixed cost become a variable cost?
Yes, a fixed cost can become variable when you change how you pay for it. Swapping a salaried bookkeeper for a freelancer paid per job, for example, turns a fixed salary into a cost that tracks your workload.
Are utility bills fixed or variable costs?
Utility bills are usually semi-variable, with a fixed base charge plus an amount based on usage. To split them, check your bill for the fixed base charge, for example a monthly standing or minimum charge, and treat the rest as variable.
What’s the difference between fixed cost and total fixed cost?
A fixed cost is a single expense, such as rent, while total fixed cost is the sum of all your fixed costs for a period. Total fixed cost is the figure you use in break-even and per-unit calculations.
How do fixed costs affect profit margins?
High fixed costs make your profit margins swing more with sales, because each sale after break-even adds its full contribution to profit. Lower fixed costs give you steadier margins when sales rise and fall.
What’s the difference between direct and indirect costs?
Direct costs link to a specific product, such as the ingredients in a meal, while indirect costs support the whole business, like accounting fees. Most fixed costs are indirect, but some indirect costs vary: electricity for your premises is indirect, yet it changes with use.
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.