What is a fixed cost?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A fixed cost is a cost that stays the same over a period whatever the level of sales or output, such as rent under a lease, an insurance premium or a salaried manager's pay. It does not rise in a busy month or fall in a quiet one, though it can change when a lease or contract is renegotiated.
Fixed describes how a cost behaves, not what it pays for. Whether a cost is fixed is a separate question from whether it is a direct cost or an overhead. Rent on a shop is both fixed and an overhead, while an employee paid a set salary to make the product is a fixed cost that relates directly to what the business sells.
Fixed costs are fixed only within limits. A lease comes up for renewal at a new rate, and a business that takes on a bigger workshop or a second vehicle steps up to a higher level of fixed cost. Some costs are partly fixed and partly variable, such as a phone plan with a monthly charge plus extra usage, and splitting them into their two parts makes planning more accurate.
Fixed costs fall due in quiet months as well as busy ones. The higher they are, the more the business has to sell before it covers its costs, which is what a break-even calculation measures, and the bigger the strain a slow period puts on cash. Shared across more sales, the fixed cost carried by each sale falls, as the example below shows.
In Australia
business.gov.au's budgeting guide asks for details of your fixed costs, giving insurance, rent and car leases as examples, and for estimates of your variable costs. Its checklist for setting up your finances names a time frame, fixed costs, variable costs and income as things a first budget needs to include.
Its guide to managing cash flow lists rent and licence renewals among the payments to plan for, and suggests setting reminders or scheduling payments in advance.
Worked example
| Meals sold in the month | Fixed costs (AUD) | Fixed cost per meal (AUD) |
|---|---|---|
| 1,000 | 12,000.00 | 12.00 |
| 2,000 | 12,000.00 | 6.00 |
| 3,000 | 12,000.00 | 4.00 |
| 4,000 | 12,000.00 | 3.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Setting a price from the fixed cost per item at today's sales level, which stops covering costs if sales fall.
- Leaving out costs paid only once or twice a year, such as insurance or vehicle registration, when adding up fixed costs.
- Treating a cost that is partly fixed, such as a phone plan with usage charges, as wholly fixed.
- Assuming fixed costs never change and missing a rent review or contract renewal in the budget.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Create a budget
business.gov.au, Australian Government. Current at 16 October 2026, released 14 November 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Setting up your finances checklist
business.gov.au, Australian Government. Current at 16 October 2026, released 13 September 2024. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Guide to managing cash flow
business.gov.au, Australian Government. Current at 15 October 2026, released 22 December 2025. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.