Fixed cost
Learn what fixed costs are, see common examples, and calculate them to price, budget and break even with confidence.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- A fixed cost is a business expense that stays the same however much you sell. Rent and salaries are the most common examples.
- In Singapore, your fixed costs include employer Central Provident Fund (CPF) contributions and work injury compensation insurance for your staff. Counting them gives you a true monthly total.
- Your break-even point is your total fixed costs divided by what each sale contributes after variable costs. Lower fixed costs mean you reach it sooner.
- Regular reviews and flexible arrangements keep fixed costs in line with your revenue. Tracking every expense in one place makes those reviews faster.
What is a fixed cost?
A fixed cost is a business expense that stays the same regardless of how much you produce or sell. Fixed costs are also called overheads or indirect costs, because they keep the whole business running rather than making one product.
Picture a café in Tiong Bahru. Its monthly rent is the same whether it sells 50 coffees a day or 500.
Fixed doesn’t mean permanent, though. Your landlord can raise the rent when your lease ends, and you can cancel a subscription you no longer use. A cost is fixed for the period your contract or payment schedule covers.
Key characteristics of fixed costs
Fixed costs share a handful of traits that make them easy to spot in your books. Look for these signs when you sort your spending:
- Steady regardless of output: the bill is the same in a busy month and a quiet one
- Set by contracts or schedules: leases and employment contracts lock in the amount for a period
- Due even with zero sales: you still owe the full amount if you sell nothing that month
- Lower per unit as volume grows: the same total is spread across more sales, so each unit carries less of it
That last trait explains why fixed costs don’t count towards marginal cost, the extra cost of producing one more unit. New businesses often sign a lease and hire staff before the first sale, so build fixed costs into your plan for start-up costs.
Examples of fixed costs
Most small businesses in Singapore pay a similar set of fixed costs each month or year. Here are the ones you’re most likely to see:
- Rent or lease: monthly payments for your shop, office, warehouse or kitchen
- Salaries and CPF contributions: fixed pay for permanent staff, plus employer CPF contributions of 17% of wages for employees aged 55 and below
- Insurance premiums: property cover plus work injury compensation insurance, required by the Ministry of Manpower for manual workers and staff earning $2,600 or less a month
- Property tax: a charge on commercial or industrial premises you own, which the Inland Revenue Authority of Singapore (IRAS) sets at 10% of annual value
- Loan repayments: fixed monthly instalments on a business loan or equipment financing
- Subscriptions and licences: software and business licences you renew on a set schedule
- Depreciation: the cost of equipment or vehicles spread over their useful life as a regular expense
Fixed costs vs variable costs
Variable costs rise and fall with your sales, while fixed costs hold steady. Raw materials, packaging, delivery fees and sales commissions are typical variable costs, since you only pay them when you make or sell something.
Here’s a quick test: if you sold nothing next month, would you still owe it? If the answer is yes, it’s a fixed cost. Some costs sit between the two groups, and they need a closer look.
Semi-variable costs
A semi-variable cost, also called a mixed cost, has a fixed base you always pay plus an amount that grows with activity, as AccountingTools explains. A mobile plan with a set monthly fee and charges for extra data is one example.
You can split any semi-variable cost with this formula:
Total cost = fixed element + (variable cost per unit × number of units)
Stepped fixed costs
Stepped fixed costs stay flat until your activity crosses a threshold, then jump to a new level. The Corporate Finance Institute (CFI) describes step costs as constant at one level of activity, changing only once a threshold is reached.
Say your online store fills its warehouse. Renting a second unit adds a new rent bill, and that higher total stays fixed until you need more space again.
How to calculate fixed costs
You can work out your fixed costs in a few minutes using your bank statements or accounting records. Follow these steps, then use the formula method to check your answer.
1. List your monthly expenses
Pull together every cost from the last month, including bills you pay once a year. Divide annual bills, such as insurance, by 12 to get a monthly figure.
2. Identify which costs are fixed
Mark each cost you’d still pay if sales dropped to zero. For semi-variable costs, count only the fixed base.
3. Add up your total fixed costs
Add every fixed cost together to get your monthly total. Use this formula:
Total fixed costs = rent + salaries + CPF + insurance + subscriptions + other fixed costs
Here’s how it works for a small bakery with two employees aged 55 and below, each earning $4,000 a month:
- Rent: $4,500
- Salaries: $8,000
- Employer CPF at 17%: $1,360
- Insurance: $300
- Software subscriptions: $250
The bakery’s total fixed costs come to $14,410 a month.
Formula method: total costs minus variable costs
If you know your total costs and your variable costs, subtract one from the other. It’s a handy way to check the list you built in the steps above.
Total fixed costs = total costs − total variable costs
If the bakery spent $20,000 last month and $5,590 of that went on ingredients and packaging, its fixed costs are $20,000 − $5,590 = $14,410.
Average fixed cost per unit
Average fixed cost shows how much fixed cost each unit of output carries. Divide your total fixed costs by the number of units you produce:
Average fixed cost per unit = total fixed costs ÷ number of units
If the bakery sells 1,000 cakes a month, each cake carries $14.41 of fixed cost. At 2,000 cakes, that falls to about $7.21 per cake.
Fixed costs and break-even analysis
Your break-even point is the level of sales where revenue covers all your costs, leaving neither profit nor loss. Fixed costs are the starting point, because every sale chips away at them first.
CFI sets out the break-even formula in units like this:
Break-even point in units = total fixed costs ÷ (selling price per unit − variable cost per unit)
Say the bakery sells each cake for $35 and spends $13 per cake on ingredients and packaging. Each sale contributes $22 towards fixed costs, so the bakery breaks even at $14,410 ÷ $22 = 655 cakes a month.
If the bakery sells 800 cakes, it has a buffer of 145 cakes before it slips into a loss. That buffer is your margin of safety, and it shows how far sales can drop before profit disappears.
Fixed costs also shape how sharply your profit reacts when sales change. CFI calls this effect operating leverage: the bigger the share of fixed costs, the more each percentage change in sales moves operating profit. That works in your favour when sales grow and against you when they dip.
Where fixed costs appear in your financial statements
Most fixed costs appear on your profit and loss statement as operating expenses, below gross profit. Rent, salaries, insurance and subscriptions all sit here, reducing your operating profit and net profit.
Depreciation is a non-cash expense: no money leaves your bank account, but it still lowers your accounting profit. In Singapore, IRAS doesn’t allow a tax deduction for accounting depreciation, so companies claim capital allowances on qualifying fixed assets instead.
Rent and salaries work differently. IRAS generally treats them as deductible revenue expenses when you incur them wholly and exclusively to produce income. So the fixed costs on your profit and loss statement won’t always match the deductions on your tax return.
Why fixed costs matter for your business
Fixed costs are the part of your spending you can plan around with confidence. They shape two everyday decisions: how you budget and how you price.
Budgeting and predictability
Because fixed costs repeat at the same amount, they form the base layer of any budget. Once you know that figure, you know the minimum revenue you need each month to keep the doors open.
They also make cash flow forecasting more accurate. Map payroll and CPF due dates against rent day, and you’ll spot tight weeks early.
Pricing decisions
Every price you set needs to cover its variable cost and contribute towards your fixed costs. The amount left after variable costs is your contribution margin, and it pays your overheads before any profit appears.
A thin contribution margin means you need high volume to cover fixed costs. Checking your profit margin alongside your fixed costs shows whether a price rise or a cost cut will help more.
How to manage fixed costs
Cost pressure is front of mind for many local firms. In the Singapore Chinese Chamber of Commerce and Industry’s 2026 survey, 71.8% of respondents named rising business costs as a top concern. These steps help you keep fixed costs lean while protecting what your business needs.
1. Review your expenses regularly
Set a reminder to go through every fixed cost each quarter. Look for subscriptions nobody opens and contracts that renew automatically at a higher rate.
2. Negotiate with suppliers and landlords
Ask for better terms before a contract renews, when you have the most bargaining power. Offering a longer lease or paying a year upfront may earn you a lower rate.
3. Consolidate tools and services
If you pay for several apps that do similar jobs, choose one that covers them all. You’ll find more ways to cut business costs in other parts of your business.
4. Outsource to turn fixed costs into variable ones
Some work doesn’t need a full-time hire. Paying a freelancer or agency per project turns a fixed salary into a cost you pay only when there’s work to do.
5. Consider flexible workspace arrangements
A co-working space or shared office lets you pay for the desks you use, usually on shorter terms than a traditional lease. Your rent then moves in step with the size of your team.
Keep your fixed costs in check with Xero
When you know your fixed costs, you can price with confidence and plan for growth. Xero helps you track every expense in one place, with bank feeds that bring your transactions in automatically.
Set up repeating bills for rent and subscriptions, then run financial reports to compare what you spent against your budget. Choose a plan today and get one month free.
FAQs on fixed costs
Here are quick answers to common questions about fixed costs.
Is rent a fixed cost?
Yes, rent is usually a fixed cost because your lease sets the amount for its full term. If your lease includes a portion tied to your monthly sales, that portion behaves like a variable cost.
Is salary a fixed or variable cost?
A salary for permanent staff is a fixed cost, along with the employer CPF that comes with it. Overtime pay and sales commissions are variable, because they rise with workload or revenue.
Are all fixed costs sunk costs?
No. As AccountingTools points out, a fixed cost is only sunk if you can’t recover it, like a custom shop fit-out with no resale value.
Can a fixed cost become a variable cost?
Yes, and switching can lower your break-even point because you only pay when you use the service. The trade-off is that pay-as-you-go arrangements can cost more per unit once your volume is high.
How do fixed costs affect profit margins?
Most fixed costs sit below gross profit, so they leave your gross profit margin unchanged but reduce your operating and net profit margins. As sales grow, fixed costs take up a smaller share of revenue, so those margins widen.
What’s the difference between direct and indirect costs?
Direct costs link to a specific product or job, like the ingredients in a cake, while indirect costs support the whole business, like rent. Most fixed costs are indirect, yet some indirect costs vary, such as electricity that rises with usage.
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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.