Fixed costs are the expenses that show up whether you sell a million units or zero. Rent, salaries, software subscriptions, insurance. They're the financial gravity of your business: always pulling, regardless of performance.
For marketers, understanding fixed costs isn't optional. Your break-even point is determined by fixed costs divided by contribution margin. The higher your fixed costs, the more revenue you need before a single dollar drops to profit. Every budget meeting, every pricing decision, every campaign evaluation eventually comes back to this relationship.
Fixed costs don't change with production volume or sales activity in the short term:
The key distinction: if you sold nothing this month, would you still pay this cost? If yes, it's fixed.
| Cost Type | Example | Behavior |
|---|---|---|
| Pure Fixed | Office lease | Same regardless of activity |
| Semi-Fixed (Step) | Hiring a new team member | Fixed within a range, then jumps |
| Semi-Variable | Electricity (base + usage) | Has fixed and variable components |
| Pure Variable | Raw materials per unit | Scales directly with output |
Most marketing costs fall in the semi-fixed category. Your HubSpot subscription is fixed until you exceed your contact tier, then it steps up. Your ad spend is variable in theory but often budgeted as a fixed monthly commitment. Your agency retainer is fixed, but project fees on top are variable.
Operating leverage is the amplification effect of fixed costs on profitability. High fixed costs mean that when revenue goes up, profit goes up faster (because fixed costs are already covered). But when revenue goes down, profit goes down faster too.
Formula: Degree of Operating Leverage = % Change in Operating Income / % Change in Revenue
A company with $500K in fixed costs and $200K in variable costs on $1M revenue: