One of the two cost categories every business has, alongside variable costs. Fixed costs are the bills that keep coming regardless of how busy you are - the floor your business has to cover before it earns anything.
Definition
Fixed Costs - expenses that stay roughly the same regardless of revenue or activity level. Rent, salaries, software subscriptions, insurance, debt service, contracted services.
Common uses
- Break-even analysis - the revenue needed to cover fixed costs is the break-even point
- Operating leverage - high fixed cost businesses amplify revenue swings into bigger profit swings
- Cash reserve sizing - reserves typically target 3-6 months of fixed operating expenses
Watch out
Owners often treat "fixed" as "unchangeable." It isn't. Most fixed costs are negotiable - just slower to change. Renegotiate at renewals; restructure during downturns.