fixed cost
A fixed cost is an expense that stays the same each month whether you sell a lot or a little, like rent or a salary.
In plain English
Every business really has two kinds of cost, and once you can tell them apart, your decisions get a lot clearer. A fixed cost does not move with your sales.
Sell out or sell nothing, the rent is still the rent, the security man salary is still his salary, the subscription still renews. These costs are already waiting the moment you open your doors, before a single customer walks in, and that makes them both a comfort and a thing to respect.
A comfort, because they are steady and you can plan around them. A thing to respect, because they must be paid even in a slow month, so the higher they are, the more you must sell just to reach zero.
A trader with a modest stall and light fixed costs can ride out a slow week with a shrug. One carrying heavy rent and several salaries feels every slow day, because the clock keeps running whether or not business comes.
So when you plan, list your fixed costs first and ask the friendly, honest question, how much must I sell each month simply to cover these before I earn anything at all? Keep them lean while you are young and still proving the idea, and a slow patch will bruise you rather than break you.
Your shop pays ₦150,000 rent and ₦100,000 in salaries a month, ₦250,000 of fixed costs. You owe that whether you sell nothing or ₦1,000,000, so it is the hill you climb before a single naira of profit is yours.
Questions people ask
What are common ones?
Rent, salaries, insurance premiums, and subscriptions, the things that do not change when sales rise or fall.
Why do they matter so much?
They set the sales you need just to break even, and they arrive even in slow months.
How is a fixed cost different from a variable cost?
A fixed cost stays the same whatever you sell. A variable cost rises and falls with how much you sell.
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