How to calculate a fixed cost in business

Fixed costs to your business can help add clarity to your financial planning, but only if you know how to find and calculate them. We’ll walk you through three ways in how to calculate fixed costs to your business and answer key questions about how they impact your finances.

Grow more confident in managing your accounting needs and discover:

• How to calculate fixed costs for your business
• What happens if you have multiple fixed costs?
• Are fixed costs better than variable ones for your expenses?
• How can you reduce fixed costs to save money?
• Track expenses more accurately with Countingup

Don’t let finances and figures stand in the way of launching your business. Learn the basics of business planning and accounting, and find out how to save time to grow your business below. 

Fixed costs to your business come in many forms and sometimes you may need to convert payments into weekly, monthly or annual figures in order to make different expenses to your business comparable. 

Note that, while annual costs to your business are rare, they still occur, and so knowing how to manage them is still important even if they’re less common. 

Weekly figures are most relevant to your business as you start to build sales goals. Learn how to calculate and convert fixed costs into weekly figures using the following formula:

• From a monthly figure: divide the total by four (or five depending on the length of the month)
• From an annual figure: divide the total by 52 (or four then 12 if your bills sync with financial quarters)

You’ll probably be more familiar with monthly figures of your fixed costs as most expenses are billed in 30-day cycles. For similar reasons, budgets are also usually drawn up with monthly timeframes in mind. Convert fixed costs into monthly figures using the method below:

• From a weekly figure: multiple the total by four (or five depending on the length of the month)
• From an annual figure: divide the total by 12 (or three if some of your bills sync with financial quarters)

Annual cost figures to businesses are typically seen in annual or quarterly reports of growth projections. Therefore, even if you don’t have annual fixed costs, being able to convert more frequent expenses into annual figures is still useful. Use the steps below to do so:

• From a weekly figure: multiple the total by 52, or four then 12
• From a monthly figure: multiply the total by 12 (or three if some of your bills sync with financial quarters)

You may wish to draw up expense breakdowns of multiple fixed costs that your business has. In which case, you can either work in totals for each figure (adding up all your monthly costs then converting them into other figures) or make breakdowns of each cost individually. 

While the latter method can be more time consuming, it can help you have a better understanding of which expenses are most challenging to your business.

Fixed costs aren’t necessarily better or worst for your business as it depends on whether you sourced a good deal for your expenses in the first place and 

Variable costs like electricity or petrol can be reduced if you don’t need to use them. And so, in this sense, if your sales dip, some of your expenses can too. However, fixed costs like finance agreements must be met and so there’s an element of pressure and uncertainty that you need to be proactive in managing.

In contrast, as your sales and profits are high, your fixed costs become far more manageable; you pay a set amount all the while making more and more money. All the while, variable costs like our electricity and petrol examples from before also correlate to your usage and so you pay more for them relatively.

Fortunately, both types of expenses are almost always tax deductible so you can claim relief on them from your taxes. Nevertheless, this still means you should seek to minimise your costs as it’s a very effective way to maximise your net profits. Find out how below.

Fixed costs to your business can be reduced if you take time to research before you buy. Whether it’s finding a cheaper supplier for routine costs, or a better price for a single purchase, being savvy with your spending habits can help you save money when it matters most. 

Even once you’ve signed a deal with a supplier, make sure to review it regularly. Market attitudes change and introductory deals end, so make sure you’re always on the best deal for your business.

Finally, while it’s not necessarily reducing costs, building a more sustainable customer base can make the sting of fixed business costs hurt less relatively and save you from the stress of meeting them. You can achieve this by marketing your business more effectively to increase your sales or using software solutions to gain back time from your business.

Would you like to see how fixed costs affect your business in real-time? Thousands of business owners are using the Countingup app to save time on their financial admin. The business current account and accounting app in one automatically categorises your transactions to keep them in good shape for your tax return. 

With instant invoicing, receipt capture tools and cash flow insights, you can confidently keep organised when it comes to your business finances and save yourself hours of accounting admin, so that you can focus on doing what you do best. Find out more here.