Fixed costs are operating expenses that do not fluctuate proportionally with revenue in the near term—committed spending a company bears whether it sells ten units or ten thousand, until management restructuring changes the baseline.

How it works

Examples include office rent, platform infrastructure baseline, executive compensation, and core R&D headcount. Variable costs—hosting tied to usage, sales commissions, payment processing—scale with activity. Startups with heavy fixed layers exhibit high operating leverage: small revenue beats drive outsized profit improvements, but misses deepen losses fast.

Investors map fixed vs variable when stress-testing burn rate and path to profitability. Capex purchases long-lived assets; their depreciation becomes fixed non-cash charge. Down rounds often trigger fixed cost cuts—layoffs and office exits—because variable trims alone insufficient.

Unit economics slides sometimes mislabel semi-variable costs (customer success at step functions) as purely variable—diligence reconciles to cash.

Why it matters

• Founders: Add fixed cost deliberately after repeatable revenue; keep flexibility with contractors and cloud scaling where possible early.
• Investors: High fixed cost structures need larger rounds and longer runway; compare efficiency to peers at similar scale.

Common mistake

Calling all payroll fixed. Sales and success headcount tied to quotas behave variably—segment costs honestly in board decks.

Related ideas

See burn rate, capex, operating leverage, and contribution margin.