Fixed costs definition

Fixed costs are the costs incurred by a company that do not vary with the scale of production. They are one of two main types of cost associated with companies’ balance sheets: the others are variable costs.

There are many different fixed costs that a business will encounter, but they are all tied together by one thing. Unlike variable costs, fixed costs will remain the same regardless of whether the business stops producing goods and services for a space of time, or ramps up production.

One example of a fixed cost could be a licence that is needed for the business to operate each year but does not change in price if production increases. If production then increases, the value achieved through the licence increases but the cost does not. As such, fixed costs are key to increasing economies of scale.