A fixed expense is one that is the same each month whether the business is busy or quiet: the rent, the insurance premium, the software subscriptions, the salaried payroll. A variable expense moves with activity: materials, shipping, hourly labor, card fees. The distinction is the first thing an owner should be able to read off their own expense record, because it tells them how much the business costs before it has done anything. This page is for the small business owner laying out a month's expenses by category, and it sets out what counts as fixed, how the fixed versus variable split appears in the record, and what to do with it. The business expense spreadsheet on this site lays out the month by category.
The definition, and the test
An expense is fixed if it would be the same next month with half the sales, and variable if it would roughly halve. Rent, insurance, subscriptions, loan repayments, salaries and most professional fees are fixed. Materials, cost of goods, shipping, commissions, hourly wages and payment processing are variable. Some costs are mixed, with a fixed base and a variable part; utilities and phone plans are the usual examples, and the record can split them or treat them as fixed for simplicity.
Why the split matters to the owner
The total of the fixed expenses is the amount the business has to earn in gross margin before it makes anything, every month, regardless of sales. Knowing that number is the difference between a quiet month that is fine and a quiet month that is a problem. Variable expenses scale, so a bad month costs less in them; fixed expenses do not, so they are the ones to review when the business shrinks.
Fixed vs variable costs in the expense record
Lay the month out by category and mark each category fixed or variable. Total each group. The fixed total should be nearly the same month to month; when it moves, something changed, and the record shows what. The variable total should track sales; when it rises faster than sales, margins are slipping. The business expense spreadsheet on this site groups categories this way so the two totals fall out of the month without a second pass.
What fixed does not mean
Fixed does not mean unchangeable. Rent renews, insurance renews, subscriptions creep. A fixed expense is fixed within the period, not forever, and the annual review of fixed costs is where most small businesses find savings. Fixed also does not mean deductible or not; deductibility is a separate question the accountant answers from the same record.
Reimbursed expenses in the split
Expenses paid by team members and reimbursed are recorded in their own categories, fixed or variable according to what they were: a subscription paid on a personal card is still a fixed expense; a customer lunch is variable. The reimbursement is the payment method, not the category. PerDiemDesk Pro, at $4 per month for the whole team, keeps the claims against the categories; the free spreadsheet here lays out the month.
Questions people ask about fixed expenses
Is payroll a fixed expense?
Salaried payroll is fixed; hourly and commission pay is variable. Most small businesses have both and record them separately.
Are fixed expenses the same as overheads?
Broadly. Overheads are the costs of running the business that are not tied to a particular sale, and most of them are fixed. The record can use either word as long as it uses one consistently.
How does fixed vs variable costs help with pricing?
The fixed total is what the gross margin on all sales has to cover before profit; knowing it tells you how much margin each sale must carry.