Fixed vs variable costs

Lesson 2 of 13 in our free Business Money Basics guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Business Money Basics is free for everyone.

Questions you'll answer

Mo's kitchen rent is £800 a month. If he doubles the number of cakes he bakes, what happens to that rent?

Monthly rent for a shared kitchen → Fixed. Same bill whether Mo bakes 10 cakes or 1,000.
Flour, butter and eggs → Variable. More cakes, more ingredients.
Cake boxes and ribbon → Variable. One box per cake: it rises with sales.
Yearly public liability insurance → Fixed. A set price for the year, not per cake.
Card machine fee charged per sale → Variable. A small cut of every sale, so it grows with sales.
Website subscription → Fixed. Flat monthly fee, no matter how many orders come in.
Fact: “Fixed costs have to be paid even in a month with no sales.” — That's what makes a quiet month scary, and why a cash buffer matters.
Fact: “Selling more spreads fixed costs over more items.” — £800 rent over 100 cakes is £8 each; over 800 cakes it's £1 each.
Myth: “Variable costs stay the same whatever you sell.” — That's the definition of fixed. Variable costs move with every sale.