Why This Matters
Fixed costs define the floor of a business’s cost structure — the amount that must be covered regardless of volume. For mid-market companies, the proportion of fixed to variable costs determines how sensitive profit is to revenue swings. A heavy fixed cost base amplifies both upside and downside: profits grow faster when volume rises, but losses mount faster when it falls. This is operating risk, and a CFO who does not understand the fixed cost base cannot properly assess the financial resilience of the business.
Where This Fits
This term sits within the Performance & Profitability area of Performance & Control.