finance
Fixed Costs
Costs that don't change with sales volume. The base load you pay every month regardless.
Definition
Fixed costs are expenses that stay the same whether you sell $50K or $500K in a month: rent, salaried payroll, software subscriptions, insurance, depreciation. The opposite of variable costs (which scale with output). High fixed costs create operating leverage - extra revenue drops mostly to the bottom line - but they also create risk in downturns. Service businesses are typically 60-80% fixed cost (mostly payroll), which is why headcount discipline is so critical.
In your business
- →List every fixed cost annually and challenge each one
- →When revenue drops, fixed costs are what bankrupt you - cut them first
- →Variable-ize where possible: contractors instead of full-time hires for project work