Finance and accounting
Fixed cost
A cost that stays the same when volume changes, within a normal range.
Last reviewedWhat 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
- Diagnosing a profit decline: the reference caseLesson in Profitability
- How healthcare systems work: patients, providers and payersLesson in Healthcare providers and payers
- How hospitals and insurers make money: costs, unit economics and operationsLesson in Healthcare providers and payers
- Profit and lossLesson
- Market expansionLesson
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.