Fixed cost

Published Monday 31 August 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 for your business
• Track your fixed costs with Xero
• FAQs on fixed costs
• Related terms
• Learn more about fixed costs

Key takeaways

• A fixed cost is a business expense that stays the same each period, whatever you produce or sell
• Common fixed costs include rent, permanent salaries, insurance, and loan interest
• Fixed costs behave differently from variable costs, which rise and fall with your sales
• Knowing your total fixed costs helps you set prices and work out your break-even point

What is a fixed cost?

A fixed cost is a business expense that stays the same over a set period, no matter how much you produce or sell. A busy month and a quiet month cost you the same amount.

Picture a small café in Makati. Whether it serves 50 customers or 500 in a month, the monthly rent stays the same, so that rent is a fixed cost.

Fixed costs are usually set by a contract or schedule, such as a lease or an insurance policy, and they have to be paid even if you make no sales. They are often grouped with overhead costs, the indirect costs of keeping your business running.

Examples of fixed costs

Fixed costs cover the running expenses you commit to regardless of how much business you do. Common examples for a Philippine small business include:

• rent or lease payments for your premises
• salaries of permanent staff
• business insurance premiums
• depreciation of equipment and vehicles
• loan interest and finance charges
• some utilities, which may have a variable element depending on use

Fixed costs vs variable costs

Most businesses pay a mix of fixed and variable costs, and telling them apart is the first step to reading your numbers clearly. The difference comes down to how each cost behaves when your sales change.

Fixed costs stay the same regardless of how much you produce, while variable costs change directly with your output, a distinction set out by Corporate Finance Institute. Variable costs rise and fall with your activity, and they include:

• cost of goods sold, such as raw materials and inventory
• packaging and shipping of those goods
• transaction fees on card and online payments
• sales commissions and referral bonuses

Some costs sit in between as semi-variable costs, with a fixed base plus a variable part. A phone plan with a set monthly fee and usage charges on top is a common example.

How to calculate fixed costs

Working out your total fixed costs takes three steps.

1. List every business expense for the period, converting any annual cost to a monthly figure so everything sits on the same timeline
2. Separate the costs that stay the same regardless of your sales; those are your fixed costs
3. Add those fixed costs together to get your total fixed costs

Another way to reach the same figure is the total fixed cost formula: total fixed costs equal total costs minus total variable costs. Keeping a clear record when you track every business expense makes this split much easier.

Once you know your total, you can work out your fixed cost per unit by dividing total fixed costs by the number of units you produce. Say your fixed costs come to ₱120,000 a month and you make 10,000 units, so your fixed cost per unit is ₱12. Make 20,000 units instead and that figure halves to ₱6, because the same fixed costs are spread across more units.

Why fixed costs matter for your business

Your fixed costs set the floor for how much you need to earn before you make a profit. Add them up and you have the revenue your business must cover just to keep the doors open.

That total feeds straight into your break-even point, the level of sales where your income matches your costs. If your café pays ₱30,000 in fixed costs each month, every sale first goes towards covering that ₱30,000 before anything counts as profit. Higher fixed costs mean you need more sales before you turn a profit.

Fixed costs also shape your pricing and profitability. When you know the fixed cost behind each product or hour of work, you can price to protect your margins and measure your profitability with more confidence.

Track your fixed costs with Xero

Fixed costs are easier to manage when every expense sits in one place. Xero accounting software brings your bills, expenses, and reports together, so you can see your fixed costs at a glance, plan around them, and find ways to cut your business costs where it makes sense. Sign up to get one month free and take clearer control of your business finances.

FAQs on fixed costs

Here are quick answers to a few common questions about fixed costs.

Is rent a fixed cost?

Yes. Rent is a fixed cost because your lease sets the same payment each period, whatever your sales. It only changes when the lease is renewed or renegotiated.

Is salary a fixed or variable cost?

A permanent employee's base salary is a fixed cost, since it stays the same each pay period. Pay that moves with output, such as commissions or overtime for casual staff, is a variable cost.

Is depreciation a fixed cost?

Yes. Depreciation spreads the cost of an asset over its useful life at a set amount each period, so it does not change with your sales volume. It is also a non-cash cost, because you paid for the asset up front.

How do fixed costs affect the break-even point?

Higher fixed costs raise your break-even point, so you need to sell more before you turn a profit. Lowering your fixed costs brings that break-even point down.

Related terms

• Variable cost
• Operating expense
• Expense

Learn more about fixed costs

• Start up costs: how to calculate and budget yours
• How to increase profits
• Profitability ratios: types, formulas and uses