What is a fixed cost?

Fixed costs are stable business expenses. They are set by time, rather than production. Regardless of their business type, business owners must understand their fixed costs so that they can make wise decisions.

Fixed cost (definition)

A fixed cost (also known as an indirect or overhead cost) is an expense that doesn’t change from one month to another. A fixed cost is not impacted by how busy the business is, or by production volume or sales or. It is a stable business expense. (Without producing anything or making any sales, fixed costs are still incurred.)

Examples of fixed costs

Examples of fixed costs include:

rent
salaries
internet and phone bills
insurance
some utilities
loan repayments
property taxes

What is a variable cost?

Variable costs are those expenses that will change in direct relation to business activity, sales, and production.

While fixed and variable costs are both expenses, as the name suggests, fixed costs don’t change in response to production or sales, whereas variable costs do.

Variable costs can include: