Economics in a picture
Smaller firms and firms operating in the accommodation and food services sector have higher fixed operating costs as a percentage of their sales
The current Covid-19 pandemic outbreak has emphasized the relevance of firms’ fixed operating costs in their capacity to weather an abrupt decline in sales. A firm’s fixed operating cost is usually defined as a cost that does not change with its sales. However, a firm may have the flexibility to reduce these costs, depending inter alia, on how extensively the firm uses fixed-term or permanent contracts, outsourcing or leasing contracts.
Taking these dimensions of flexibility into account, we estimate that in the period between 2006 and 2018 fixed operating costs of Portuguese firms account on average for approximately 15% of their sales. The sectors with higher fixed operating costs to sales ratios are accommodation and food services (31%), human health (28%), and other services (23%). In turn, the sectors with lower ratios are the wholesale and retail trade (9%) and transportation and storage (10%). The fixed operating costs of very small firms account for 18% of their sales while fixed operating costs of larger firms account for 13% of their sales.
For more details see Félix, Moreira and Silva (2021), “On the measurement of Portuguese firms’ fixed operating costs”, published in Banco de Portugal Economic Studies, vol. VII, 1.
Prepared by Sónia Félix, Pedro Moreira, and Nuno Silva. The analysis, opinions and results expressed herein are those of the authors and do not necessarily coincide with those of Banco de Portugal or the Eurosystem.
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