What are fixed costs in business?

Fixed costs are the expenses your business pays no matter how much you sell. They don’t fluctuate with sales volume or production levels—which means they stick around whether your month is booming or breaking even.

Think of things like rent, salaries, and software subscriptions. These costs are predictable, but they also lock in risk. The more fixed costs your business takes on, the more pressure you face to cover them month after month—regardless of revenue.

That’s why understanding fixed costs isn’t just about accounting—it’s about making smarter decisions around pricing, forecasting, and scaling sustainably. In this guide, we’ll break down:

• What counts as a fixed cost (and what doesn’t)
• Examples across different business types
• How to calculate your total fixed costs
• And how these costs impact your financial strategy over time

Fixed costs definition

Fixed costs are business expenses that stay the same regardless of how much you produce or sell. 

So for example, whether you’re serving 10 customers or 10,000, these costs remain steady—think office rent, equipment leases, or salaried staff.

Fixed costs are tied to your operations—not performance—which means you commit to paying them regardless of how busy or quiet the month is.

This makes fixed costs different from variable costs, like inventory or transaction fees, which fluctuate with activity. Both matter—but fixed costs define your baseline burn rate. We’ll cover more of their differences below.

Why it’s important to know your fixed cost structure

Your total fixed costs are the foundation of two key financial metrics:

• Burn rate: How much money your business needs to operate each month, before making a single sale. Especially important for startups or seasonal businesses.
• Break-even point: The amount of revenue you need to cover your fixed and variable costs. Once you pass that line, you're operating at a profit.

Knowing your fixed costs doesn’t just help you plan—it helps you price your product, hire confidently, and scale with clarity. It’ll help you answer questions like:

• How much revenue do we need to stay afloat?
• Can we afford to hire another full-time employee?
• Are we scaling with a cost structure that supports profitability?

Examples of fixed costs in business

Fixed costs show up differently depending on the size and structure of your business—but the core trait is the same: you pay them on a regular schedule, regardless of output.

Common examples include:

• Office rent or commercial lease payments
• Salaried employee wages (not tied to hours worked or sales made)
• Insurance premiums (e.g. general liability, health coverage)
• Software subscriptions and licenses
• Loan repayments (principal + interest)
• Equipment leases or depreciation
• Property taxes

These costs often recur monthly or annually, and while they’re predictable, they can add up quickly—especially as you scale.

More examples of fixed costs across business types:

• Retail: storefront rent, salaried managers, POS system subscriptions
• Manufacturing: warehouse lease, salaried engineers, equipment depreciation
• SaaS or services: office lease, developer salaries, cloud infrastructure
• Freelancer/solo LLC: coworking membership, health insurance, tools like QuickBooks

Not sure whether something counts as a fixed cost? Ask: Would we pay this even if we didn’t sell anything this month? If the answer is yes, it’s probably fixed.

Fixed costs vs. variable costs: What’s the difference?

So how are fixed costs different from variable costs?

Put simply:

• Fixed costs stay the same, no matter how much you sell
• Variable costs go up or down depending on how much you produce or sell

If you run a product-based business, raw materials and shipping costs are typical variable costs—they increase as you sell more units. 

If you run a service business, freelancer payouts or usage-based tools (like certain cloud platforms) might fall into this category.

Here’s how they compare at a glance:

Fixed Costs

• Definition: Expenses that remain constant regardless of production volume or sales
• Tied to sales?: No — stays the same
• Examples: Rent, salaried staff, insurance, software
• Predictable?: Yes
• Good for: Stability and long-term planning
• Risks: High pressure if revenue drops
• Impact on budgeting: Provide predictability; essential for long-term financial planning

Variable Costs

• Definition: Expenses that fluctuate directly with production volume or sales
• Tied to sales?: Yes — changes based on output or volume
• Examples: Raw materials, transaction fees, shipping, bonuses
• Predictable?: Less predictable
• Good for: Flexibility and scaling with demand
• Risks: Less control if costs spike unexpectedly
• Impact on budgeting: Require careful monitoring; can significantly impact short-term cash flow

How to calculate fixed costs

Most business owners can start by listing and totaling their known fixed expenses: rent, salaries, subscriptions, and so on.

But if you’re working backwards from total spend—and you already know your variable cost per unit and how many units you produced or sold—you can also use this formula:

Total Fixed Costs = Total Costs − (Variable Cost per Unit × Number of Units Sold)

This is helpful when you’re reviewing actuals from a past month or quarter and want to break out how much of your spend was fixed vs. variable.

Example:

If your business spent $50,000 total last month, and $15,000 of that was tied to producing 3,000 units at $5 each, then:

Fixed Costs = $50,000 − ($5 × 3,000) = $35,000

Use whichever approach fits your records and accounting setup—either build from the ground up, or isolate fixed costs using historical data.

How fixed costs influence your profit potential

Fixed costs don’t change with sales—but they have a big impact on how your profits scale as your business grows. This is tied to something called operating leverage.

Operating leverage describes how much your profits increase as revenue rises, depending on how your costs are structured. If most of your costs are fixed—like salaries or rent—you’ll see a bigger jump in profit once you pass your break-even point.

Take a software company, for example. After building the product (a fixed cost), the cost to serve each new customer is low. That means every new dollar of revenue goes mostly to profit.

The flip side? High fixed costs also mean more pressure when revenue dips. So it's not just about having leverage—it’s about knowing how to use it wisely as you grow.

Are all fixed costs truly fixed?

Not always. Some fixed costs stay consistent for years—others change when your business grows, restructures, or hits new capacity.

Here are a few reasons fixed costs might shift:

• Scaling your team: Hiring more salaried employees increases your fixed payroll expenses—even though the cost per employee stays constant.
• Upgrading your space or tools: Moving into a bigger office or upgrading your equipment lease bumps up your baseline, even if your sales don’t change.
• Stepped or tiered expenses: Some costs stay flat until you cross a threshold—like outgrowing a software plan or hitting usage limits on infrastructure.
• Reclassified costs: As your business model evolves, what used to be variable might become fixed (e.g., converting a freelancer into a salaried employee).

So while the term “fixed” refers to behavior—not amount—it’s still important to revisit your cost structure regularly. 

What was manageable at one stage of growth might need rethinking as you scale.

Managing fixed costs with the right tools

Once you’ve mapped out your fixed costs, the next challenge is staying on top of them—especially as your business grows.

That’s where the right financial tools come in.

At Rho, we’ve built an all-in-one finance platform to help you manage spend with more visibility and control. Whether you're tracking recurring software subscriptions or making large vendor payments, we give you the structure to keep fixed costs predictable—and flexible when they need to be.

Here’s how we help:

• Corporate cards with built-in spend rules so you can prevent runaway costs before they happen
• Automated AP workflows to stay on top of recurring bills like rent or insurance
• Real-time expense tracking to see what’s fixed, what’s flexible, and where you can adjust

We also integrate directly with your accounting software—so you don’t need to jump between tools to get the full picture.

Ready to streamline how your team manages fixed expenses—and everything else behind the scenes? Book a demo to see Rho today.