COSTS word concept on wood cubes.

What Is a Fixed Expense?

3 min read • Mar 26, 2021 • Derek Miller

In bookkeeping, there are 2 types of costs: fixed and variable. Fixed costs remain the same, while variable costs change from period-to-period. This guide will answer a few key questions about fixed expenses so you can better understand how they work. 

What Are Some Examples of Fixed Expenses?

Within your business, you are likely to have multiple fixed expenses from different sources. A few examples of fixed expenses that most businesses have include:

  • Monthly rent or mortgage payments
  • Annual fees
  • Monthly subscriptions to marketing tools
  • Insurance costs
  • Loan payments
  • Employee salaries

Are Fixed Expenses Always Monthly?

No. You may have some annual or quarterly fixed expenses like operational fees or insurance costs. However, some accountants divide annual expenses over 12 months to make them look like monthly fixed expenses. 

When Do Fixed Expenses Change?

Fixed expenses change periodically when the agreements that companies have with the vendor or employee change. These expenses will likely only change once per year—or even less frequently. For example:

  • A landlord could raise the monthly rent costs
  • An employee could earn a raise on their monthly salary
  • Insurance costs could go up when the business renews the policy

Do Fixed Expenses Ever Decrease? 

Fixed expenses can decrease if the company actively takes steps to lower them. One way a company can save money and increase its profit margin is by lowering fixed expenses:

  • A brick-and-mortar business can move to a new location with lower rent costs
  • A manufacturer can find a new vendor to buy supplies at lower costs
  • A company can cancel a monthly software subscription

Why Should You Track Fixed Expenses?

Fixed expenses are an important part of budgeting. Because they remain static, business owners know exactly how much to set aside to cover the costs. From there, these managers can focus on estimating variable expenses and determining how much they need to make in sales to be profitable. 

Managing your expenses is a key part of running a business. Before you can manage your expenses, you need to understand and track them. This is especially true for fixed expenses, which are often the most expensive costs you accrue monthly. The guide above gives you an intro to fixed expenses, but if you really want to dive deeper into these costs, consider using a bookkeeping solution like Lendio’s software, which will help you track and manage your fixed expenses easily.

Where’s all your money going? With Lendio expense tracking, it’s easy to account for every penny.

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Derek Miller

Derek Miller is the CMO of Smack Apparel, the content guru at Great.com, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp.