Fixed costs are business expenses that remain constant regardless of your sales volume. Examples include rent, insurance premiums, salaries of permanent staff and loan repayments.
Fixed costs do not change with the level of business activity in the short term. Whether you sell one unit or one thousand units, your rent stays the same, your insurance premiums remain unchanged and your permanent staff salaries are constant. Understanding your fixed cost base is essential for break-even analysis, pricing decisions and financial planning. Fixed costs create operating leverage - once you cover your fixed costs, additional revenue drops largely to the bottom line (after variable costs). However, high fixed costs also increase risk because you must generate enough revenue to cover them regardless of business conditions. Common fixed costs include rent/lease payments, insurance, permanent salaries, loan repayments, software subscriptions and depreciation. Some costs are semi-fixed (like utilities - there is a base charge plus usage). SortBooks helps identify and track fixed costs separately from variable costs, enabling accurate break-even analysis and profitability reporting.
SortBooks helps with the bookkeeping behind fixed costs by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing fixed costs by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Variable costs change in proportion to your business activity or sales volume. Examples include raw materials, direct labour, shipping costs and sales commissions.
The break-even point is the level of sales at which your total revenue equals your total costs, resulting in zero profit or loss. It tells you the minimum you need to sell to cover all expenses.
Operating expenses are the day-to-day costs of running your business, excluding COGS. They include rent, wages, utilities, marketing, insurance and administrative costs.
Contribution margin is the amount remaining from sales revenue after deducting variable costs. It shows how much each sale contributes toward covering fixed costs and generating profit.
Overhead refers to the ongoing costs of operating your business that are not directly tied to producing a specific product or service. It includes rent, utilities and administrative salaries.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.