{"id":19493,"date":"2024-09-06T15:44:12","date_gmt":"2024-09-06T14:44:12","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=19493"},"modified":"2025-05-07T14:54:00","modified_gmt":"2025-05-07T13:54:00","slug":"fixed-costs","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/fixed-costs\/","title":{"rendered":"What are fixed costs?"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-gb\/blog\/category\/money-matters\/\" class=\"entry-header__link\">Money Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat are fixed costs?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t<p class=\"entry-header__description\">\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2024-09-06T15:44:12+01:00\">6 September, 2024<\/time><\/span><span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What are fixed costs?\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-gb\/blog\/fixed-costs\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n<div class=\"wp-block-post-author\">\n\t\t\t<div class=\"co-authors\">\n\t\t\t\n\t\t<div class=\"entry-author-wrapper\">\n\t\t\t<a class=\"entry-author\" href=\"https:\/\/www.sage.com\/en-gb\/blog\/author\/sarahcheesman\/\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"40\" height=\"40\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman-350x350.png\" class=\"entry-author__image\" alt=\"Sarah Cheesman\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman-350x350.png 350w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman-768x768.png 768w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman-810x810.png 810w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman.png 1080w\" sizes=\"auto, (max-width: 40px) 100vw, 40px\" \/>\t\t\t\t<span class=\"entry-author__name\">Sarah Cheesman<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t<\/div>\n\t\t<\/div>\n\n\n\n<p>Running a small business can feel like juggling a dozen different balls at once. You&#8217;re constantly managing, planning, and trying to stay ahead of the game. <\/p>\n\n\n\n<p>One of the crucial areas that often get overlooked is understanding your costs\u2014especially fixed costs. But here&#8217;s the good news: grasping this concept can give you a real edge in making smarter financial decisions.<\/p>\n\n\n\n<p>By the end of this article, you&#8217;ll not only understand what these costs are but also how they can impact your business and, more importantly, how to manage them effectively.<\/p>\n\n\n<?xml encoding=\"utf-8\" ?><div class=\"wp-block-yoast-seo-table-of-contents yoast-table-of-contents\"><ul><li><a href=\"#h-what-are-fixed-costs\" data-level=\"2\">What are fixed costs?<\/a><\/li><li><a href=\"#h-common-examples-of-fixed-costs\" data-level=\"2\">Common examples of fixed costs<\/a><\/li><li><a href=\"#h-why-understanding-fixed-costs-matters\" data-level=\"2\">Why understanding fixed costs matters<\/a><\/li><li><a href=\"#h-how-to-manage-fixed-costs-effectively\" data-level=\"2\">How to manage fixed costs effectively<\/a><\/li><li><a href=\"#h-their-role-in-pricing-strategies\" data-level=\"2\">Their role in pricing strategies<\/a><\/li><li><a href=\"#h-real-world-example-a-case-study-in-fixed-costs-management\" data-level=\"2\">Real-world example: A case study in fixed costs management<\/a><\/li><li><a href=\"#h-final-thoughts-the-power-of-understanding-fixed-costs\" data-level=\"2\">Final thoughts: The power of understanding fixed costs<\/a><\/li><\/ul><\/div>\n\n\n<div class=\"single-cta\">\n\t<a\n\t\tclass=\"button button--primary gate-46d869e5-f36b-4b06-8a2c-0ee65a10435b\"\n\t\trole=\"button\"\n\t\tdata-button-location=\"content_area\"\n\t\thref=\"#gate-46d869e5-f36b-4b06-8a2c-0ee65a10435b\"\n\t>Download your free small business toolkit and use the checklists and templates to manage your accounting, payroll and HR business admin with ease<\/a>\n<\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-are-fixed-costs\">What are fixed costs?<\/h2>\n\n\n\n<p>Let&#8217;s start with the basics. Fixed costs are the expenses your business incurs that remain constant, regardless of how much you&#8217;re producing or selling. Think of them as the baseline expenses you have to cover, no matter what. <\/p>\n\n\n\n<p>Unlike variable costs\u2014which fluctuate based on your business activity\u2014fixed costs are more predictable.<\/p>\n\n\n\n<p>Imagine you&#8217;re renting an office space. Whether you&#8217;re seeing 100 clients a day or just one, that rent stays the same. This is a classic example of a fixed cost. Their consistency can be both a blessing and a challenge. <\/p>\n\n\n\n<p>On the one hand, they make <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/create-budget-for-your-business\/\" target=\"_blank\" rel=\"noopener noreferrer\">budgeting<\/a> easier. On the other hand, they can feel like a bit of a burden when business is slow.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-common-examples-of-fixed-costs\">Common examples of fixed costs<\/h2>\n\n\n\n<p>To make this concept clearer, let&#8217;s break down some of the most common fixed costs small businesses face:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Rent or mortgage payments<\/strong>: as mentioned earlier, your rent is a fixed cost. It doesn&#8217;t change month-to-month, even if your income does. If you own the premises, mortgage payments are another fixed cost to consider.<br><\/li>\n\n\n\n<li><strong>Salaries<\/strong>: for permanent staff, their salaries are usually fixed. Whether business is booming or in a lull, you still need to pay your employees their agreed-upon wage.<br><\/li>\n\n\n\n<li><strong>Insurance<\/strong>: your business insurance premiums are typically fixed for the term of the policy, providing another steady cost to account for.<br><\/li>\n\n\n\n<li><strong>Utilities<\/strong>: while some utility costs can vary (like heating during a particularly cold winter), many are relatively consistent\u2014especially if you&#8217;re on a fixed plan.<br><\/li>\n\n\n\n<li><strong>Loan repayments<\/strong>: if your business has taken out loans, repayments are usually a fixed monthly amount, regardless of how your business is performing.<br><\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-why-understanding-fixed-costs-matters\">Why understanding fixed costs matters<\/h2>\n\n\n\n<p>Knowing what your fixed costs are helps to keep your books tidy, while also helping you strategically plan for the future. You see, fixed costs are a big part of what&#8217;s known as your business&#8217;s <a href=\"https:\/\/www.sage.com\/en-us\/blog\/glossary\/what-is-break-even-analysis-and-how-is-it-calculated\/\" rel=\"noopener noreferrer\">break-even point<\/a>. <\/p>\n\n\n\n<p>This is the point at which your total revenue equals your total costs, meaning you&#8217;re not making a loss, but you&#8217;re not making a <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/calculate-net-profit-margin\/\" target=\"_blank\" rel=\"noreferrer noopener\">profit<\/a> yet either.<\/p>\n\n\n\n<p>The higher your fixed costs, the higher your break-even point. In other words, you need to bring in more revenue just to cover those costs before you can start thinking about profit. <\/p>\n\n\n\n<p>Understanding this helps you make better decisions about pricing, budgeting, and even scaling your business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-to-manage-fixed-costs-effectively\">How to manage fixed costs effectively<\/h2>\n\n\n\n<p>Managing fixed costs can sometimes feel like a huge task, but with a few strategic moves, you can make sure they don&#8217;t weigh down your business. Here are some practical steps you can take:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Negotiate rent or lease terms<\/strong>: if rent is one of your significant fixed costs, consider negotiating with your landlord. You might be able to secure a lower rate or more favourable terms, especially if you&#8217;ve been a reliable tenant.<br><\/li>\n\n\n\n<li><strong>Review staffing needs<\/strong>: while it&#8217;s important to pay your employees fairly, regularly reviewing your staffing levels can ensure you&#8217;re not overspending. This doesn&#8217;t necessarily mean cutting jobs but rather optimising schedules or considering part-time or freelance workers.<br><\/li>\n\n\n\n<li><strong>Shop around for insurance<\/strong>: insurance is a necessary expense, but that doesn&#8217;t mean you should accept the first quote you get. Shop around to ensure you&#8217;re getting the best deal possible, and review your policy annually to make sure it still meets your needs.<br><\/li>\n\n\n\n<li><strong>Consider refinancing loans<\/strong>: interest rates and loan terms can change. If your business has outstanding loans, it might be worth looking into refinancing options to lower your monthly repayments.<br><\/li>\n\n\n\n<li><strong>Implement energy-saving measures<\/strong>: while some utility costs are fixed, you can still take steps to reduce them. Simple changes like switching to energy-efficient lighting, installing smart thermostats, or even conducting an energy audit can lead to significant savings over time.<br><\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-their-role-in-pricing-strategies\">Their role in pricing strategies<\/h2>\n\n\n\n<p>Fixed costs also play a crucial role in how you price your products or services. To set a price that ensures profitability, you need to cover both your variable and fixed costs. This is where understanding your break-even point comes back into play.<\/p>\n\n\n\n<p>For example, if your <a href=\"https:\/\/www.sage.com\/en-gb\/sage-business-cloud\/intacct\/product-capabilities\/extended-capabilities\/fixed-assets\/\" target=\"_blank\" rel=\"noopener noreferrer\">fixed costs are high<\/a>, you may need to set a higher price to ensure you&#8217;re not just breaking even but making a profit. <\/p>\n\n\n\n<p>However, pricing too high could start to deter customers, so it&#8217;s definitely a balancing act. By having a clear picture of your fixed costs, you can make more informed decisions about where to set your prices.<\/p>\n\n\n<div class=\"single-cta\">\n\t<a\n\t\tclass=\"button button--primary gate-46d869e5-f36b-4b06-8a2c-0ee65a10435b\"\n\t\trole=\"button\"\n\t\tdata-button-location=\"content_area\"\n\t\thref=\"#gate-46d869e5-f36b-4b06-8a2c-0ee65a10435b\"\n\t>Download your free small business toolkit and use the checklists and templates to manage your accounting, payroll and HR business admin with ease<\/a>\n<\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-real-world-example-a-case-study-in-fixed-costs-management\">Real-world example: A case study in fixed costs management<\/h2>\n\n\n\n<p>Let&#8217;s take a look at a hypothetical small business to see how understanding and managing these costs can make a real difference.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-case-study-katie-s-coffee-shop\">Case study: Katie&#8217;s coffee shop<\/h4>\n\n\n\n<p>Katie runs a small, independent coffee shop in the heart of a busy UK town. Her fixed costs include rent, salaries for 2 full-time baristas, insurance, and utilities. <\/p>\n\n\n\n<p>When she first opened, business was brisk, and covering her fixed costs was no issue. However, a nearby competitor opened, and foot traffic began to slow. Suddenly, Katie was struggling to break even.<\/p>\n\n\n\n<p>By closely examining her costs, Sarah was able to take action. She renegotiated her lease, securing a small reduction in rent. <\/p>\n\n\n\n<p>She also adjusted her staffing schedule, reducing hours during quieter times and hiring a part-time employee instead of a third full-time barista. Then she invested in energy-efficient appliances, which helped lower her utility bills.<\/p>\n\n\n\n<p>These changes didn&#8217;t eliminate the costs entirely, but made them a lot more manageable. As a result, Katie was able to lower her break-even point, giving her more breathing room to focus on attracting customers and boosting revenue.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-final-thoughts-the-power-of-understanding-fixed-costs\">Final thoughts: The power of understanding fixed costs<\/h2>\n\n\n\n<p>Fixed costs might not be the most exciting part of running a business, but they&#8217;re one of the most important. <\/p>\n\n\n\n<p>By understanding what they are and how they impact your business, you can take control of your finances, make smarter decisions, and ultimately, improve your bottom line.<\/p>\n\n\n\n<p>Remember, the key is not just to know what your fixed costs are, but to actively manage them, making sure they don&#8217;t become an anchor dragging down your business. <\/p>\n\n\n\n<p>This will put you in a much better position to navigate challenges, seize opportunities, and grow your business successfully.<\/p>\n\n\n\n \n<div class=\"single-cta gated-content\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Get your free small business toolkit<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p><!-- wp:paragraph --><\/p>\n<p>Need help with accounting, payroll and HR admin for your business? This toolkit comprises free templates and checklists to help you manage your key business admin tasks with ease.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-46d869e5-f36b-4b06-8a2c-0ee65a10435b\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Download the toolkit<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1261586981-1440x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1261586981-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Learn what fixed costs are and how they impact your small business. Discover practical tips to improve budgeting, and enhance profitability.<\/p>\n","protected":false},"author":1813,"featured_media":19497,"menu_order":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_sage_video":false,"post_featured_image_hide":false,"footnotes":""},"categories":[6],"tags":[197,135,12],"business_type":[4],"lilypad":[],"context":[],"industry":[],"persona":[],"imagine_tag":[254],"coauthors":[361],"class_list":["post-19493","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money-matters","tag-business-costs","tag-business-finances","tag-start-business","business_type-small-business"],"sage_meta":{"region":"en-gb","author_name":"Sarah Cheesman","featured_image":"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/09\/Woman-working-in-coffee-shop.jpg","imagine_tags":{"254":"Business reporting"}},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice UK","distributor_original_site_url":"https:\/\/www.sage.com\/en-gb\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/19493","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/users\/1813"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/comments?post=19493"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/19493\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media\/19497"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media?parent=19493"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/categories?post=19493"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/tags?post=19493"},{"taxonomy":"business_type","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/business_type?post=19493"},{"taxonomy":"lilypad","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/lilypad?post=19493"},{"taxonomy":"context","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/context?post=19493"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/industry?post=19493"},{"taxonomy":"persona","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/persona?post=19493"},{"taxonomy":"imagine_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/imagine_tag?post=19493"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/coauthors?post=19493"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}