Fixed cost

Published Thursday 23 July 2026

Table of contents

• What is a fixed cost?
• Examples of fixed costs
• Fixed costs vs variable costs
• Can fixed costs change?
• How to calculate fixed costs
• Why fixed costs matter for budgeting and break-even
• How to reduce fixed costs
• Stay on top of your fixed costs with Xero
• FAQs on fixed costs
• Related terms
• Learn more about fixed costs

Key takeaways

• A fixed cost is a regular business expense that stays the same no matter how much you produce or sell.
• Common examples include rent, rates, insurance, permanent salaries and software subscriptions.
• Fixed costs stay steady, while variable costs rise and fall with your business activity.
• Knowing your fixed costs helps you budget accurately and work out how much you need to sell to break even.

What is a fixed cost?

A fixed cost is a business expense that stays the same regardless of how much you produce or sell. It's a regular, predictable cost you pay whether business is busy or quiet.

Because fixed costs recur on a set schedule, like monthly or yearly, you can plan for them with confidence. You'll still owe them even in a month when you make no sales at all.

Examples of fixed costs

Fixed costs show up in almost every New Zealand business, whatever the industry. Common examples include:

• rent or lease of your business premises
• rates on property you own
• insurance premiums
• permanent staff salaries
• equipment leases
• software subscriptions
• loan repayments

Fixed costs vs variable costs

The main difference is how each cost responds to your business activity. Fixed costs stay the same, while variable costs move up and down with how much you produce or sell.

Variable costs change with your output or sales volume. Common examples include:

• cost of sales, like raw materials and stock
• marketing spend that scales with your campaigns
• payment transaction fees

Not every cost sits neatly in one camp. Some are semi-variable, with a fixed base plus a portion that shifts with activity, which the next section covers.

Can fixed costs change?

Yes. Fixed costs can change over time, and some costs are semi-variable, meaning they mix a fixed part and a variable part.

A fixed cost isn't fixed forever. Rent can rise at a review, and insurance premiums can shift each year.

Semi-variable, or mixed, costs include power bills or wages topped up by overtime: part stays constant, and part moves with activity. Step costs jump to a new level once you pass a threshold, such as leasing a second premises as you grow.

How to calculate fixed costs

Working out your fixed costs is straightforward once you know which expenses to include. Follow these steps:

1. List every expense that stays the same each period, such as rent, insurance, software subscriptions and permanent salaries.
2. Add them together to get your total fixed costs for the period.
3. To find the average, or per-unit, fixed cost, divide total fixed costs by the number of units you produce.
4. To double-check your figure, take total costs and subtract total variable costs to get total fixed costs.

Here's a simple monthly example. Rent of $2,000, insurance of $300, software of $150 and salaries of $6,000 add up to total fixed costs of $8,450 a month.

Why fixed costs matter for budgeting and break-even

Fixed costs shape how you budget and price your work. Because they're predictable, they're easy to plan for month to month.

The higher your fixed costs, the more you need to sell to cover them. That's why they sit at the heart of your break-even point, the level of sales where your total costs and total income match.

How to reduce fixed costs

Trimming fixed costs can lift your profit without needing extra sales. A few practical places to start:

• review your premises and floor space for smaller or cheaper options
• compare insurance and software subscriptions to find better value
• weigh up permanent staff against contractors for flexible work

Stay on top of your fixed costs with Xero

Clear, predictable fixed costs are easier to manage when your numbers live in one place. With Xero accounting software, you can track expenses, see your spending in real time and plan ahead with confidence. Get one month free when you start with Xero.

FAQs on fixed costs

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

What is a fixed cost?

A fixed cost is a business expense that stays the same regardless of how much you produce or sell. Rent, insurance and permanent salaries are typical examples.

What is the difference between fixed and variable costs?

Fixed costs stay the same regardless of your activity, while variable costs rise and fall with how much you produce or sell.

How do you calculate total fixed costs?

Add together every expense that stays the same each period, such as rent, insurance and software. You can also subtract total variable costs from your total costs.

Are wages a fixed or variable cost?

Permanent salaries are usually a fixed cost, since they stay the same each pay period. Wages driven by overtime or casual hours are variable or semi-variable.

Can a fixed cost change over time?

Yes. A fixed cost can rise or fall at events like a rent review or insurance renewal, even though it stays steady day to day.

Related terms

• Expense
• Overhead
• Operating expense
• Cost of goods sold (COGS)
• Break-even point

Learn more about fixed costs

• Managing overhead costs in your business
• How to create a small business budget
• Budgeting and forecasting