Fixed Costs
Fixed Costs refer to business expenses that remain the same regardless of sales volume or production levels.
In Filipino MSME terms: ito yung “mga gastusing hindi nagbabago” — kahit konti o marami ang benta, pareho pa rin ang bayad.
Fixed costs are essential for budgeting, pricing, and break‑even analysis.
Why Fixed Costs Matter
For Filipino MSMEs, understanding fixed costs is important because it:
- Helps set the right pricing to cover costs and earn profit
- Improves budgeting and cash flow planning
- Determines break‑even point
- Prevents underpricing by accounting for overhead
- Supports long‑term financial stability
Fixed costs stay constant month after month, making them predictable but unavoidable.
Common Examples of Fixed Costs
- Rent (pwesto, commissary, office)
- Salaries of regular staff
- Internet and phone plans
- Insurance
- Loan repayments
- Software subscriptions (POS, accounting tools)
- Depreciation of equipment
These costs do not change even if sales go up or down.
Fixed Costs vs. Variable Costs
Fixed Costs: Same every month (e.g., rent, salaries).
Variable Costs: Change depending on sales or production (e.g., ingredients, packaging).
Both are needed to calculate true profitability.
Example / Context
Example 1 (Carinderia):
Rent and staff salaries remain the same even if fewer customers come in.
Example 2 (Online Seller):
Monthly internet and software subscriptions are fixed costs.
Example 3 (Retail Store):
Loan payments and insurance premiums do not change with sales volume.
Example 4 (Freelancer):
Co‑working space rent and design software fees are fixed costs.
Related Terms
FAQs
1. Do fixed costs ever change?
They may change occasionally (e.g., rent increase), but they remain constant within a period.
2. Are salaries always fixed costs?
Regular monthly salaries are fixed, but commissions and overtime are variable.
3. Why are fixed costs important in pricing?
Because prices must cover both fixed and variable costs to ensure profit.
4. How do fixed costs affect break‑even point?
Higher fixed costs mean you need more sales to break even.