When your fixed cost is high

It means you have inefficiency. It is as simple as that. There are only 3 options in this ‘high fixed cost’ situation.

  1. You improve your efficiency or increase your productivity. Where do those costs come from – too many staff, very high rental fee, etc? You may need to make a hard decision if necessary.
  2. You pass your cost to customers. You can only choose this option if you are in monopoly or oligopoly market i.e. no or only a few competitors in the market, which is very unlikely.
  3. You increase quantity sales. Assuming that your variable cost is not as high as your fixed cost, you should be ok.

In the end, if your fixed cost is high, option 1 is the most sustainable option.

Apivut

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