Your ability to plan for growth or handle a downturn is fundamental to your continued success. Taking into account your fixed costs (easy to predict) and your variable costs (not so easy to predict) can give you important information about the health of your business. If you’re a graphic designer who works from a home office, your fixed costs will be very different from those of a restaurant owner or a furniture manufacturer. But cost structure differs greatly from industry to industry. But for now, your fixed costs are predictable, and that’s an advantage.Įvery business, no matter its size, incurs both fixed and variable costs.
Or your coverage needs might change, resulting in higher insurance rates. One day, growth in your bakery’s neighborhood might cause your rent or property taxes to increase. Fixed costs (like everything else) become more difficult to predict as you start looking to the future. Likewise, your fixed costs will account for a smaller percentage of your total expenses if your bakery increases in popularity and generates more sales.īecause fixed costs are stable in the short term, they’re relatively easy to project and include in your budget. These and other fixed costs don’t change as your business changes. Examples of fixed costs include:įor example, if you own a bakery and have a bad month, you’ll still owe the same amount for your rent or mortgage, your liability insurance, your employees’ salaries, etc. Fixed costs are costs that remain constant regardless of how much your company produces or sells.
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