Fixed vs. variable expenses: Examples and key differences

Fixed expenses are the costs your business pays regularly, regardless of sales volume or production levels. Think rent payments, insurance premiums, salaries, and subscription services—these bills arrive monthly whether you sell 10 units or 10,000, much like rent, insurance, or subscription bills in a household budget.

Knowing the difference between fixed and variable expenses helps you forecast cash flow accurately, set realistic budgets, and make smarter decisions about scaling operations. When you can predict your baseline costs, you gain control over profitability and avoid financial surprises that derail growth.

What are fixed expenses?

Fixed expenses are costs that stay the same month after month, regardless of business activity. Your rent doesn’t change during a slow sales period, and insurance premiums remain constant whether you produce 100 units or 1,000.

These predictable costs differ from variable expenses, which fluctuate with production volume or usage. Raw materials, shipping fees, sales commissions, and hourly labor scale up or down based on activity, while fixed expenses remain stable.

Fixed expenses, also called fixed costs, form the foundation of your budget because you can count on them. When you know exactly what you owe each month, you can forecast cash flow more accurately, set minimum revenue targets, and understand how much margin is required to cover baseline operations.

Fixed expenses examples

Fixed expenses include monthly rent, salaries, and loan repayments. Here’s a more detailed breakdown:

Facilities and occupancy

Facilities and occupancy costs stay fixed because they’re typically governed by contracts or ownership agreements, not day-to-day operations, similar to how rent or mortgage payments remain consistent in a personal budget:

• Rent or lease payments: Monthly costs for office, warehouse, or retail space under a lease agreement
• Mortgage payments: Monthly costs for owned commercial real estate
• Property insurance: Coverage protecting business property against damage, theft, or liability
• Property taxes: Annual or semi-annual taxes assessed on owned commercial real estate
• Building maintenance contracts: Service agreements for HVAC, elevators, or facility upkeep

These expenses often represent one of the largest fixed cost categories and are commonly locked in through multi-year agreements.

Personnel

Personnel expenses remain fixed when compensation and benefits don’t fluctuate with output or hours worked:

• Salaries: Fixed compensation paid to full-time employees regardless of hours worked
• Health insurance premiums: Monthly costs for employee medical, dental, and vision coverage
• Employer payroll taxes: Mandatory employer contributions for Social Security, Medicare, and unemployment insurance
• Retirement plan contributions: Employer matching or defined contributions to retirement plans

These costs provide workforce stability but remain constant even during slower revenue periods.

Technology and equipment

Technology and equipment expenses stay fixed because access and availability don’t change with usage in the short term:

• Software subscriptions: Monthly or annual fees for accounting, CRM, project management, and other business software
• Equipment lease payments: Fixed monthly costs for leased copiers, machinery, vehicles, or computers
• Internet and phone bills: Monthly telecommunications costs for business connectivity
• Website hosting and domain fees: Annual or monthly costs to maintain an online presence

These expenses support daily operations regardless of fluctuations in revenue.

Professional services

Professional service costs are typically fixed when billed on a retainer or recurring contract basis:

• Legal retainer fees: Ongoing payments to law firms for access to legal counsel
• Accounting and bookkeeping services: Monthly fees for financial statement preparation and tax compliance
• Business licenses and permits: Annual renewal fees required to operate legally
• Professional liability insurance: Coverage protecting against claims of negligence or malpractice

These expenses help manage risk and compliance while remaining predictable throughout the year.

Administrative

Administrative expenses support core operations and compliance, remaining fixed as long as underlying agreements stay in place:

• General liability insurance: Coverage for third-party injury, property damage, and advertising claims
• Workers’ compensation insurance: State-mandated coverage for employee workplace injuries
• Bank service fees: Monthly charges for business checking accounts and merchant processing services

Semi-fixed expenses to consider

Some costs fall between fixed and variable. Semi-fixed expenses, also called mixed expenses, include a predictable base charge plus a variable component tied to usage or scale, which is common for both businesses and households:

• Utilities with base charges: A minimum service fee applies each month, with higher costs if usage increases, whether for a facility or a home
• SaaS subscriptions with usage tiers: A fixed platform fee that rises when users or transactions exceed plan limits
• Vendor retainers: Flat monthly fees that increase if project scope expands
• Insurance premiums: Generally stable but adjusted periodically based on claims, risk, or headcount

Treating semi-fixed expenses by separating their fixed and variable portions improves forecasting accuracy.

Fixed vs. variable expenses

​​Fixed expenses remain steady regardless of business activity, while variable expenses fluctuate as production, usage, or sales change. Understanding how each behaves helps you forecast cash flow, control costs, and plan for growth while budgeting for both fixed and variable expenses.

To categorize borderline expenses, review several months of invoices and calculate how much costs vary. If a line item changes by more than 10% month to month, treat it as variable. For semi-variable expenses, separate the fixed base from the variable portion to improve forecasting accuracy.

Benefits of understanding fixed and variable expenses

Knowing the difference between fixed and variable expenses gives you clearer visibility into where your money goes and how costs behave as revenue changes. That understanding improves budgeting accuracy, cash flow planning, and long-term financial decision-making.

Better budgeting and forecasting

Fixed expenses are easy to plan for because they stay consistent, while variable expenses require closer monitoring. When you understand how both behave, you can forecast more accurately by accounting for predictable monthly costs and anticipating when variable expenses are likely to rise.

Improved cost control

Identifying fixed and variable expenses makes it easier to control spending during slower periods. Variable costs typically decrease as activity slows, while managing fixed expenses often involves longer-term decisions such as renegotiating contracts or adjusting staffing levels.

More accurate profitability analysis

Separating fixed and variable costs allows you to calculate your break-even point more precisely. Knowing when revenue covers total expenses helps guide decisions around pricing, production levels, and expansion.

Enhanced scalability and flexibility

Understanding how variable expenses scale with activity helps you assess how quickly your business can adapt to changes in demand. Businesses with high fixed costs may face greater risk during downturns, while higher variable costs often allow for more operational flexibility.

Improved operational efficiency

Reviewing fixed and variable expenses can reveal opportunities to improve efficiency and cash flow. For example, fluctuating utility costs may highlight opportunities for energy savings, while high fixed expenses can signal a need to renegotiate vendor contracts.

Strategies for managing fixed and variable expenses

Managing expenses effectively means knowing which costs are flexible and which require long-term planning. Fixed expenses are harder to adjust quickly, while variable expenses offer more immediate opportunities for control.

Reducing fixed expenses

Fixed expenses stay the same regardless of revenue, so lowering them usually requires proactive, long-term decisions rather than short-term cutbacks:

• Negotiate lease terms: Seek better rates for office space or equipment leases when contracts renew
• Refinance loan payments: Lock in lower interest rates on business loans or mortgages to reduce monthly obligations
• Audit subscriptions: Review SaaS platforms, memberships, or streaming services to cut unused or duplicate tools
• Downsize if needed: Evaluate whether your current office space or asset base matches your team’s actual needs

Keeping fixed expenses lean improves flexibility and reduces the minimum cash reserves required to operate during slower periods.

Controlling variable expenses

Variable expenses can be adjusted more quickly because they scale with activity and don’t require breaking long-term commitments:

• Set departmental limits: Use spending policies or card controls to cap travel, dining, or entertainment costs
• Analyze patterns: Track fluctuations in raw materials, shipping, and utilities to identify overspending
• Plan for seasonality: Build predictable spikes into forecasts to avoid surprises
• Use cash flow tools: Budgeting and accounting software can flag when variable costs grow faster than revenue

Because many variable expenses are discretionary, they’re often the fastest way to protect margins during downturns.

Handling semi-fixed and mixed expenses

Some costs don’t fit neatly into fixed or variable categories. For these semi-fixed expenses, separate the predictable base cost from the variable portion. For example, a SaaS contract may include a fixed platform fee plus usage-based charges. Treating each component correctly improves forecasting accuracy.

Using budgeting frameworks and cash reserves

Budgeting frameworks help you prioritize spending and prepare for revenue swings before they become financial stress:

• The 50/30/20 rule: In personal finance, this allocates income across needs, wants, and savings; businesses can adapt it by ensuring fixed expenses don’t consume more than half of revenue
• Discretionary vs. non-discretionary: Labeling expenses this way clarifies which costs can be reduced quickly and which must be covered
• Emergency fund planning: Fixed expense totals should guide how many months of reserves you keep on hand

Applying these frameworks makes financial planning more resilient as conditions change.

Classify and control expenses automatically with Ramp

Distinguishing fixed from variable expenses requires oversight across every transaction, vendor, and department. Ramp's accounting automation software eliminates the guesswork by automatically classifying spend as it happens and enforcing controls that keep both expense types aligned with your budget.

Ramp's AI learns your accounting patterns and codes transactions in real time across all required fields, including custom dimensions like expense type. You can tag recurring vendor payments as fixed costs and flag discretionary spend as variable, so every transaction lands in the right bucket without manual review. Ramp applies your feedback to improve accuracy over time, achieving a 67% increase in zero-touch codings compared to rules-only automation.

Once expenses are classified, Ramp's policy engine enforces spending limits at the transaction level. You can set fixed budgets for recurring costs like software subscriptions and SaaS tools, then create flexible limits for variable expenses like travel and marketing. Ramp blocks out-of-policy spend before it posts, so you control both expense categories proactively rather than reconciling overages after the fact.

Try a demo to see how Ramp classifies and controls expenses automatically across your organization.