Pricing & margin
Fixed Costs
Formula reviewed by Tahir Asif, CMA
Costs that stay the same regardless of sales volume, at least within a normal operating range.
Fixed costs — rent, salaried payroll, insurance, most software subscriptions — don't change whether a business sells one unit or ten thousand, within a given range of activity. They're the number that has to be covered by contribution margin before any profit exists.
In practice, most fixed costs are only fixed within a range: a business that outgrows its space eventually needs a bigger lease, at which point fixed costs step up to a new, higher level. This is sometimes called a 'step cost.'
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