Finance and accounting
Fixed cost
A cost that stays the same when volume changes, within a normal range.
Facts checked against sources onWhat does Fixed cost mean?
A fixed cost does not change with the number of units you make or sell, at least in the short run and within a normal range of volume. Rent on a factory, salaries of permanent staff and insurance are fixed costs. You pay them whether you sell one unit or many. Beyond a certain volume, even fixed costs step up (a second factory).
Where does it come up in case interview prep?
- Unit economics in any businessLesson in How industries work: the toolkit
- Cost structures, margins and capital intensity across industriesLesson in How industries work: the toolkit
- Fixed and variable costs, operating leverage, and unit economicsLesson in Business basics for non-business learners
- Scale and scope: when being bigger lowers costLesson in Why some businesses win: competitive advantage and the economics of strategy
- The business case for automation: payback, utilization risk, and peopleLesson in Making operations better, and planning for what can go wrong
- Scenario planning: base, upside, downside, and deciding when you cannot knowLesson in Making operations better, and planning for what can go wrong
- Organisation design: spans, layers, and central or localLesson in People, rules and responsibility: organisation, regulation and sustainability
- Diagnosing a profit decline: the reference caseLesson in Profitability
Related terms
- Variable costA cost that rises and falls with how much you make.
- Step costA cost that is flat over a range, then jumps.
- BreakevenThe volume or revenue at which profit is exactly zero.
- Operating leverageHow much profit swings when revenue changes, because of fixed costs.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Semi-variable costA cost with a fixed part and a part that moves with volume.
Learn it in context
See Fixed cost at work in a lesson from How industries work: the toolkit, with checks as you go.
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