Fixed Cost

A fixed cost means that it’s fixed in place, not moving...like the steely eyed gaze of Ahab. A fixed cost is one that you incur whether you sell one unit of a widget or a million. Variable costs…uh…vary. They change. Think about the cost of the plastic that goes into each widget. Sell only one widget and your plastics bill is low...sell a million widgets and it likely costs a lot.

But ok, that’s the bird's eye view. Example time.

You own an absinthe stand called Absinthe Pete's. Yeah, it’s 1925 and people are bored. In order to sell the absinthe, you had to have an absinthe milking factory, which costs you 400 bucks to build. It’s 1925, so things are cheaper and deadlier.

That 400 bucks for the factory is a fixed cost. Without that absinthe milker, you, uh...have nothing to sell. You also have to pay 50 bucks a month to rent the land on which the factory sits. That $50 rent is a fixed recurring cost; your cost of rent doesn’t change whether you sell one gallon of Gentleman Pete's Aged Reserve or 10,000 gallons...you still pay 50 bucks a month to rent the land.

Fixed. Recurring. Cost.