Fixed Cost

A fixed cost is a business expense that stays the same each period regardless of how much you sell or produce. Rent, insurance, permanent salaries, and loan repayments are all fixed costs - they land on your books whether you invoice heavily that month or take no orders at all. Fixed costs matter because you have to cover them before you make any profit, and they set the minimum sales level your business needs to break even.

Fixed Costs in Trade and Project-Based Businesses

For trade contractors, installers, and distributors, fixed costs typically include premises costs (depot, workshop, or showroom rent), permanent staff salaries, vehicle and equipment depreciation, software subscriptions, and insurance. These costs run whether you are managing three jobs or ten. They do not shrink when work slows - which is why understanding them clearly matters when pricing new work.

Consider a promotional merchandise distributor carrying £8,000 per month in fixed costs. Every order they take must generate enough gross margin, above its variable costs, to contribute toward covering that base before any net profit appears. A renewables installer with a permanent crew faces the same arithmetic: those salaries run regardless of how many surveys convert to installations that week.

The practical consequence is that businesses with higher fixed costs need greater consistency of work at adequate margins. A short quiet period that barely affects a low-fixed-cost operation can push a high-fixed-cost business into loss.

Fixed Costs vs Variable Costs

Variable costs change with activity: materials consumed on a job, subcontractor fees for a specific project, or the run charge on a merchandise order all go up when you take more work and fall when you take less. Fixed costs do not move with volume.

Understanding this split helps with pricing. If your fixed costs are already covered by existing work, any additional contract that exceeds its variable costs is contributing to profit. If fixed costs are not covered, every contract needs to carry a share of them.

The split also matters for break-even analysis. Your break-even point is the revenue level where total income covers total costs - fixed plus variable. Knowing your fixed cost base sets the floor you need to stay above. Businesses tracking job costs in detail, using a tool like Zigaflow's Jobs feature, can see how each job performs against both its fixed and variable cost allocation.