What is "Fixed Costs" meaning?

Fixed costs refer to ongoing business expenses that do not vary with changes in output or sales. These are essential for day-to-day operations and are incurred regardless of how much a company produces or sells. In digital businesses, fixed costs often include software licenses, hosting services, and salaried employees.

Example

"Our fixed costs include monthly payments for our office lease, website hosting, and team salaries—no matter how many clients we serve."

How is "Fixed Costs" used in business?

Fixed costs are used in budgeting and financial planning to understand a company’s break-even point. They help entrepreneurs forecast profit margins and plan for scalability. Reducing fixed costs can improve cash flow, especially in the early stages of a startup.

Pro Tip

When building a digital business, keep fixed costs lean to maintain flexibility and reduce risk during periods of low revenue.

Related Terms

Variable Costs, Break-Even Point, Cash Flow, Operating Expenses