Key takeaways
- Fixed costs: same amount each period, regardless of sales. Variable costs: change with each sale or job.
- Semi-variable costs have a fixed base plus a usage charge, like a phone plan with overage.
- Break-even units = fixed costs ÷ (price − variable cost per unit).
- Fixed costs are a commitment; variable costs scale down when work slows.
What are fixed and variable costs?
Look at last month’s receipts and ask one question about each: would I have paid this if I’d made zero sales? If yes, it’s fixed. If it only happened because you made a sale or did a job, it’s variable.
Rent, insurance and your accounting software are fixed. The materials for a job, the shipping label, the payment processor’s cut and a subcontractor hired for one project are variable.
Track fixed and variable costs by category with the Manage Receipt app.
Differences
| Fixed costs | Variable costs | |
|---|---|---|
| Changes with sales? | No | Yes |
| Cost per unit | Falls as you sell more | Stays about the same |
| In a slow month | Still due in full | Shrinks with activity |
| Typical receipts | Rent, insurance, subscriptions, salaries | Materials, shipping, card fees, commissions |
| How to control | Renegotiate or cancel | Better suppliers, less waste |
Semi-variable costs
Many bills sit in between. A phone plan has a monthly base plus overage. Utilities have a connection fee plus usage. A part-time assistant may have guaranteed hours plus extra in busy weeks. These are semi-variable, or mixed, costs.
A simple way to handle them: treat the minimum you always pay as fixed, and anything above it as variable. If last year’s phone bills ranged from $60 to $95, call $60 fixed and the rest variable. Your recurring receipts make that minimum easy to spot.
Examples
A freelance event photographer has $1,500 of fixed costs a month: insurance, software, a storage plan, phone base fee and a share of equipment costs. Each shoot has about $60 of variable costs: mileage, a second-shooter tip, prints and card fees. She charges $400 per shoot.
- Each shoot contributes $400 − $60 = $340 toward fixed costs.
- Break-even: $1,500 ÷ $340 = 4.41, so she needs 5 shoots a month to cover costs.
- At 8 shoots: 8 × $340 = $2,720, minus $1,500 fixed = $1,220 profit.
Why it matters
- Pricing: your price has to beat variable cost per job and leave enough to cover fixed costs.
- Break-even: you know exactly how many sales a month keep you afloat.
- Risk: high fixed costs mean a slow month hurts more. Lower them before signing long leases.
- Budgeting: fixed costs are easy to forecast; variable costs are forecast as a percentage of sales.
- Cash flow: fixed bills are due even when clients pay late, so keep a buffer for at least one month of them.
Recurring vs one-time, at a glance
Receipts you scan into Manage Receipt are categorized by vendor and type, and bill reminders track your recurring monthly charges. That makes it simple to list your fixed costs from recurring bills and your variable costs from one-time job receipts, then pull a report for any month.
Explore AI Expense ReportsFrequently asked questions
Is rent fixed or variable?
Rent is a fixed cost. You owe the same amount every month whether you have a record month or no sales at all. The exception is a percentage lease, common in retail, where part of the rent depends on sales; that portion behaves like a variable cost.
What are examples of variable costs?
Common variable costs include raw materials, inventory, packaging, shipping to customers, payment processing fees, sales commissions, subcontractors hired per job and fuel for job-related driving. Each one rises when you sell more and falls when business slows. Tracking them per job shows whether each sale is actually profitable.
Are salaries fixed or variable?
Regular salaries are fixed because they’re paid regardless of output. Hourly wages for staff whose hours rise and fall with demand, overtime and commissions are variable or semi-variable. Many small businesses have both: a fixed core team plus variable help in busy periods.
Why do fixed costs per unit go down as sales rise?
Because the same fixed total is spread across more units. If your fixed costs are $1,500 a month, they’re $300 per job at 5 jobs but $150 per job at 10 jobs. That’s why growing sales usually improves profit margins faster than costs rise.