What Are Fixed Costs?
Unlike variable costs, the fixed costs incurred by a business don’t change no matter how many sales it makes.
Fixed costs are the opposite of variable costs.
You may have heard the term fixed costs used interchangeably with “overheads.” Overheads and fixed costs, though, are not the same. It’s possible to have variable overheads – an example of this would be bookkeepers’ fees, which are likely to grow as your business grows.
What Are Examples of Fixed Costs?
Common examples of fixes costs are:
- Lease or rent payments – as long as you don’t move or expand, these stay the same.
- Utilities – there may be slight seasonal changes, but by and large, these remain fixed.
- Certain staff salaries
- Property taxes
- Interest expenses/loans
How to Calculate Fixed Costs
The formula for calculating fixed costs is incredibly simple.
First, you need to find your total fixed costs. You do this by simply adding up bills that don’t change each month: rent, website hosting, insurance, and other similar costs to the business.
Once you have added these up, you can use your total fixed cost to find your average fixed costs.
Average fixed costs = total fixed costs / number of units created each month
Effectively, your average fixed costs are the total fixed costs divided by the number of products you make.
See our full list of over 50 Small Business Terms here.
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