Fixed costs

[peterjhale]

I thought I'll add this in from an earlier newsletter we sent out about fixed costs :

When you are preparing your break-even analysis the main objective is 'when will I cover my fixed costs' - this is breakeven - ie: when you make no profit and no loss - you simply cover all of your costs.

Your next objective will be to see when you make your desired profits!.

But what of your costs are fixed.

Peter Hale had a recent conversation with one of our clients when he was preparing his P&L to discover those costs that are really fixed. Let's take that question in reverse :

Your variable costs are :
IF you made one more sale tomorrow what costs would change?

Everything else is fixed. Here are some examples :
Rent
Rates
Salaries
Accountancy costs
Most marketing costs

These costs would not change whether you made 0, 1 or 10 sales today. Variable costs would be directly associated with that one sale :

Raw materials
Commissions
Online bank charges (per sale)
Delivery costs