Fixed costs are regular, unchanging expenses that a company incurs regardless of its level of production or sales, such as rent, salaries, or insurance.
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Last Updated: February 10, 2026
Business planning is a major step in starting a business. Business owners need to know how much the business can spend on rent, utilities, and other overhead costs. These are often called fixed costs. This guide explains the essential facts about fixed costs, including what they mean, the benefits and drawbacks of fixed costs, and more.
Entrepreneurs need to consider the fixed costs when planning and budgeting. Fixed costs are the costs that remain the same during a period of time, regardless of production amounts. The business must pay its fixed costs to stay in business.
Fixed costs are one factor used to determine a company’s total cost of production and break-even point.
In business, the cost of production is a combination of fixed costs and variable costs. If a business owner knows their total cost of production and variable cost per unit, they can calculate their fixed costs as:
Fixed Cost = Total Cost of Production – (Number of Units Produced * Variable Cost Per Unit).
In comparison to fixed costs, which stay the same throughout an accounting period, variable costs are dependent on production levels. With each unit produced or service provided, the variable costs increase. Fixed costs, however, remain constant depending on their contract terms (such as a rental lease).
When investors consider a company, they will want to know the business’s expected break-even point. The break-even point represents the amount of money the business needs to cover its expenses. At the break-even point, there are no losses or profits. To determine how many sales the business needs to make to break even, use this formula:
Break-Even Point in Units = Fixed Costs ÷ (Price – Variable Costs).
The fixed costs advantages include:
Because fixed costs don’t change, the average cost per unit will decrease if the business increases its output without adding other fixed costs.
Fixed costs have some disadvantages, including:
Regardless of the business or industry, it’s important for business owners to account for their fixed costs. Because fixed costs don’t directly impact production, it can be helpful for entrepreneurs to consider their business needs when electing new fixed costs.
The definition of fixed costs includes start-up costs, one-time fees, and costs required to keep the business compliant. Examples of fixed costs include:
Sometimes business calculations include another cost called the “semi-variable.” Semi-variable costs can change with increased or decreased production levels, but an entrepreneur can predict them like fixed costs. For example, a business owner might need to increase their costs for salaries because they need more employees to increase production.
Business owners use the fixed costs definition when budgeting and planning for a small business. Fixed costs must be paid to keep the business running and don’t change with the number of sales.
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When an entrepreneur is planning their business, ZenBusiness can help. Their team of business experts is here to provide guidance on a variety of business issues, like taxes and liability. Form a business with them, and they’ll help with managing the legal requirements of owning a business.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
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