Understanding your fixed costs is one of the most important steps in managing your business. Whether you’re budgeting, setting prices, or analyzing profits, fixed costs tell you what expenses you need to cover — even if you don’t sell a single thing.
Let’s break down exactly how to calculate fixed cost, with an example and a calculator.
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🙋 What Is a Fixed Cost?
A fixed cost is an expense that stays the same regardless of how much you produce or sell. You pay it whether you make 10 products or 10,000.
Examples of fixed costs:
- Rent or lease payments
- Salaries for permanent staff
- Insurance
- Depreciation on equipment
- Utilities (often partly fixed)
These are different from variable costs, which increase or decrease depending on your production volume (like raw materials or shipping).
🧮 Fixed Cost Formula
Here’s the basic formula you can use to calculate fixed cost:
Fixed Cost = Total Cost − (Variable Cost per Unit × Number of Units)📦 Example
Let’s say:
- Total cost = $30,000
- Variable cost per unit = $10
- Units produced = 1,000
Plug into the formula:
Fixed Cost = 30,000 − (10 × 1,000)
Fixed Cost = 30,000 − 10,000
Fixed Cost = 20,000So your fixed costs are $20,000.
The calculator below finds the fixed cost based on total cost, units produced, and variable cost per unit.
💡 Why Fixed Costs Matter
Fixed costs are important because they help you:
- Set accurate product prices
- Know your break-even point
- Improve your budgeting
- Understand your total cost structure
You need to cover fixed costs before you start making a profit — so knowing them helps with financial planning and growth!