Fixed costs are expenses that stay the same regardless of how much you sell, like rent, salaries and software subscriptions. Variable costs rise and fall with each unit sold, like materials, payment processing fees and per-customer hosting.
That one distinction sits underneath almost every money decision a small company makes: what your break-even point is, what a sale actually contributes, and how much of your spending you could stop tomorrow if you had to. Getting a cost in the wrong pile quietly distorts all three.
Fixed costs definition
A fixed cost arrives whether you sell nothing or everything. Rent is due in a month with zero revenue and in your best month ever, and it is the same number both times. The defining test is not the size of the expense or how often it recurs, but whether selling one more unit changes it.
total fixed costs = sum of all expenses that do not
change with sales volume
fixed expenses formula, per unit:
average fixed cost = total fixed costs / units sold
The second line is why scale helps. €10,000 of fixed costs spread over 100 customers is €100 each; over 1,000 customers it is €10. The costs did not fall, they got diluted.
Common fixed costs: rent, salaries, insurance, software subscriptions, accounting fees, loan repayments.
Variable costs definition
A variable cost belongs to the unit. Sell one more, spend a bit more; sell nothing, spend nothing. In a bakery that is flour. In software it is the costs people forget to count: payment processing, hosting that scales with usage, support time, onboarding.
total variable costs = variable cost per unit x units sold
Common variable costs: raw materials, payment fees, shipping, sales commissions, per-seat licenses you resell, usage-based cloud spend.
Fixed vs variable costs compared
| Fixed costs | Variable costs | |
|---|---|---|
| Changes with sales? | No | Yes, per unit |
| When sales double | Unchanged | Roughly doubles |
| When sales stop | Still due in full | Falls to near zero |
| Examples | Rent, salaries, insurance, subscriptions | Materials, payment fees, commissions, usage-based hosting |
| Sets | Your break-even point | Your contribution margin per sale |
| Risk profile | Dangerous in a downturn, cheap at scale | Safe in a downturn, eats margin at scale |
The last row is the strategic trade-off. A business heavy on fixed costs is fragile when revenue dips and wildly profitable past break-even. A business heavy on variable costs survives a bad quarter easily but never gets the scale dividend.
How do you calculate fixed and variable costs?
Go through last month's expenses line by line and ask the one test question: if we had sold twice as much, would this line have changed? No means fixed, yes means variable. Most lines classify themselves in seconds; salaries, rent and subscriptions go one way, materials and payment fees the other.
The awkward ones are semi-variable costs, which have a floor plus a usage component: a cloud bill with a base fee, a phone plan with overages. Split those with the high-low method:
variable cost per unit = (highest month's cost - lowest month's cost)
/ (highest month's units - lowest month's units)
fixed portion = total cost - (variable cost per unit x units)
Take your busiest and quietest recent months, and the cost difference between them divided by the unit difference is the variable rate. Whatever is left is the fixed floor. It is an approximation, and for a small company it is plenty.
Is salary a fixed or variable cost?
Salaries are a fixed cost: a full-time employee costs the same in a slow month as in a record one. Commissions, overtime and per-project contractor fees are variable, because they track activity. A salesperson on base plus commission is literally both, one line of each. Salaries are usually a company's largest fixed cost, which is why the employee cost calculator prices a hire in runway months, not just euros.
Is rent a fixed or variable cost?
Rent is the textbook fixed cost: set by the lease, indifferent to your sales. The exceptions are rare in practice, like percentage leases in retail where the landlord takes a share of revenue, or coworking plans priced per desk as you grow. If your rent is a flat monthly number on a contract, it is fixed.
Why the split matters
Three numbers come straight out of this classification, and each one answers a question founders actually face:
Contribution margin. Price minus variable cost per unit is what each sale contributes toward fixed costs. If that number is negative, selling more makes things worse, which is the core finding of unit economics.
Break-even point. Fixed costs divided by contribution margin per unit is the volume at which you stop losing money. The break-even calculator does the division, and misclassified costs are the main reason break-even figures turn out wrong.
Gross margin. Your variable delivery costs are most of the "cost of revenue" in gross margin, so underestimating them, which software companies chronically do with hosting and support, overstates the margin you plan around.
There is also a fourth, blunter use. Fixed costs are your monthly floor, the amount that leaves the account before a single sale, which makes them the spine of any cash forecast. When cuts are needed, the variable side falls on its own as volume falls; it is the fixed list you have to consciously shrink, and cutting it without cutting muscle is its own discipline.
Keep the two lines visible
The classification is not paperwork, it is a lens: fixed costs tell you what survival costs, variable costs tell you what growth costs. The failure mode is doing this once in a spreadsheet and letting it rot while subscriptions accumulate on the fixed pile. Record what you spend as it happens, the way Plainhub does it, and the floor stays a number you know rather than one you estimate.