What are Fixed Expenses?

Fixed expenses are expenses that do not change in conjunction with the level of activity. These expenses tend to be quite stable, not changing much from month to month. Many of these expenses are incurred under contractual arrangements that require a business to continue making them for an extended period of time.

How Variable are Fixed Expenses?

Fixed expenses tend to be fixed within a certain range of activity, but will vary outside of that range. For example, a business may rent administrative space that is a fixed cost; however, sales double, requiring the addition of more staff than can fit into the existing facility, calling for an increase in rent expense to accommodate the additional staff.

Examples of Fixed Expenses

There are many types of fixed expenses, including the following:

Rent payments. Payments for office space, retail locations, manufacturing facilities, or equipment leases remain constant as per the lease agreement.
Insurance premiums. Regular payments for business insurance (e.g., liability, property, or workers' compensation) or personal insurance (e.g., health, auto, or home insurance) are fixed during the policy period.
Salaries. Salaries of full-time employees on fixed contracts, such as managers, administrative staff, or executives, are predetermined and remain unchanged regardless of workload.
Depreciation. Depreciation of assets, such as equipment or buildings, is a fixed non-cash expense that reflects the allocation of an asset's cost over its useful life.
Property taxes. Periodic taxes assessed on property owned by a business or individual are fixed until reassessment occurs, often on an annual basis.
Subscription services. Costs for recurring services such as software licenses (e.g., Microsoft Office, QuickBooks), streaming services, or professional memberships are typically fixed monthly or annually.
Amortization. The scheduled amortization of intangible assets, such as patents or trademarks, is a fixed expense over the asset’s useful life.
Equipment maintenance contracts. Fixed fees for service agreements or maintenance contracts for equipment, machinery, or technology, often billed monthly or annually.
Retainer fees. Monthly payments for professional services, such as legal or consulting retainers, remain fixed by agreement.