Fixed Costs

Definition

Fixed costs do not scale directly with volume in the short term (rent, base salaries, core tools). They matter for break-even and operating leverage.

Example

Rent and full-time salaries stay constant whether you sell 100 or 1,000 units.

How to use it

• Fixed costs create operating leverage as revenue scales.
• Some costs are fixed only within a volume range (step costs).
• Separate fixed vs variable to compute contribution margin correctly.
• Review fixed cost growth when planning new hiring or facilities.
• Model fixed costs over the same period as your revenue target.

Common mistakes

• Classifying step-function costs as purely fixed.
• Ignoring fixed costs when setting break-even targets.
• Allocating fixed costs to units inconsistently across periods.
• Treating fixed costs as sunk when planning new programs.

Why this matters

This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.

Practical checklist

• Write a 1-line definition for "Fixed Costs" that your team will use consistently.
• Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
• Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
• Use a calculator that references this term (e.g., Break-even Pricing Calculator) to sanity-check assumptions.
• Read the related guide (e.g., Break-even pricing: contribution margin, break-even units, and profit) for context and common pitfalls.

Where to use this on MetricKit