Fixed vs. Variable Cost Ratio
Proportion of total costs that are fixed versus variable, indicating cost structure flexibility
What is Fixed vs. Variable Cost Ratio?
Fixed versus variable cost ratio is the share of total costs that are fixed. It shows how much of the cost base stays the same however much the business sells.
A high fixed share gives strong profit growth when sales rise but leaves the business exposed if sales fall.
How this KPI is measured
- Function
- Finance
- Sub-function
- Cost Management
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- %
- Measurement frequency
- Quarterly / Annual
- Formula
- (Fixed costs / Total costs) × 100
How to calculate it
Divide fixed costs by total costs, and multiply by 100.
For example, if fixed costs are 3,000,000 and total costs are 5,000,000, the fixed share is 60%.
Classify each cost as fixed or variable consistently. Some costs are semi-variable, and you may need to split them.
Where it is used
Understanding risk
See exposure to sales changes.
Break-even analysis
Work out the sales needed to cover costs.
Planning flexibility
Convert fixed costs to variable where sensible.
How to improve it
Tips and common mistakes
- There is no ideal ratio. It depends on the business model.
- High fixed costs need reliable demand.
- Some costs are fixed only in the short term.
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