Fixed cost - What is a fixed cost?

Fixed cost refers to business expenses that do not change over time or depending on the productivity of the company

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Fixed costs involve any expenditure that a business pays, usually regularly, that remains the same regardless of the production levels of the business.

In other words, it is the amount that the business has to pay to stay operational, no matter how well that fiscal period has gone. Fixed costs generally do not change over time and are used to determine the break-even point for businesses, especially those starting out.

Fixed cost vs variable cost

As the term implies, a fixed cost generally does not change from payment period to payment period. Costs that change - are affected by production amounts, income, etc., are known as ‘variable costs’.

While the line might seem clear, there are some costs that can fluctuate but would still be considered fixed costs. The main aspect of a fixed cost is that it is a regular cost for operations within a certain range of predictability.

Examples of fixed costs

There are some obvious fixed costs for most businesses. For example, if the business is renting an office or workspace, the monthly rent would be considered a fixed cost.

The utilities cost would also be considered fixed, as it is a regular payment made within a given range. Although this amount can fluctuate slightly (and so is slightly variable), it’s generally considered a fixed cost as it is an expected amount that can be predicted fairly accurately.

More examples of fixed costs include:

• Insurance: if you’re paying a regular amount based on a contract for coverage
• Salaries: payment to employees, not dependent on hours contributed
• Depreciation/amortisation: the regular expense of a tangible or intangible asset over the course of its useful life

The expenses encountered by a business that can be considered fixed costs are generally the regular payments that must be made regardless of the income or variable costs for a given time period.

Can a fixed cost change?

Yes. Fixed costs can change if the costs of operations changes. For example, if rent goes up, the fixed costs might be re-evaluated. Or if there is a period where significantly more electricity is necessary for operations, the fixed cost can have a variable element, meaning that it changes permanently or temporarily.

Fixed costs and invoicing software

It’s safe to say that staying on budget means keeping thorough records of your cash flow. Both income and expenses are important for understand the financial stability of your business.

With online invoicing software like Debitoor, registering expenses is easy. From the mobile app, you can snap a picture of a receipt or upload a file from your computer on the web app. Dashboard graphs allow you to get an overview of your expenses at a glance, and easily see the selected categories.