Fixed Cost

Business Finance

Fixed costs are expenses that don't change with business activity levels — rent, base salaries, insurance, depreciation, software subscriptions, equipment leases. Stay constant whether you produce 100 or 1,000 units. Distinguished from variable costs (which change with volume). High fixed cost businesses (airlines, hotels, restaurants, manufacturers) have high operating leverage — small revenue changes drive large profit changes. High variable cost businesses (consulting, distribution) have lower operating leverage. Fixed costs only become 'variable' in the long run as you can reduce headcount or break leases. Understanding fixed cost commitments is critical for downturn planning.