What is the difference between a fixed cost and

2 min read

Stays flatFixed cost

ScalesVariable cost

Sets break-evenWhy it matters

How they differ

Fixed costs — rent, salaries, insurance, loan repayments — are payable regardless of sales. Variable costs — materials, packaging, transaction fees — move with how much you produce or sell. The difference between selling price and variable cost per unit is your contribution margin, which covers fixed costs and then becomes profit.

Why it matters for your company

The fixed/variable split drives your break-even point and your flexibility. A business with high fixed costs needs more sales to break even and cannot cut costs quickly if trade drops — which matters for resilience. Since a loan repayment is a fixed cost, borrowing raises your break-even; check the new level with the break-even calculator.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

Is a loan repayment a fixed or variable cost?

A fixed cost — it is due regardless of sales. That is why taking on a loan raises your break-even point, and why a repayment that flexes with revenue (like a facility you draw and repay) can suit volatile income better.

Why does the fixed/variable mix matter in a downturn?

High fixed costs are hard to cut quickly, so a sales drop hits profit fast. A more variable cost base flexes down with revenue, making the business more resilient. It's a key factor in how well you'd weather a slump.