What is a fixed cost?

Definition of a fixed cost

A fixed cost is a cost that stays the same regardless of how many sales your business makes, or how active it is otherwise.

‘Variable costs’ are the opposite of fixed costs.

The term ‘fixed costs’ is often used interchangeably with ‘overheads’. However these two are not exactly the same, since you can have variable overheads (such as bookkeeper’s fees, which are likely to be higher as a business grows, given it will have more transactions) and fixed costs of sales (such as rent of a factory where goods are made).

Examples of fixed costs:

Examples of fixed costs would be the rent of a building, or salaries for office staff.

Fixed costs may change over time, for instance the rent cost would increase if a business rented another building as well. In this instance the cost is known as a ‘stepped cost’ because it goes up in steps - if you drew a graph of the amount of cost over time, the graph would look like a flight of stairs.