Dr. Paul Borosky, DBA, MBA
Business Plan Writer & Financial Projections
What Are Step Costs, and How Do You Plan for Them?
Hiring Early Feels Careful. It Can Be Expensive.
The new location opens in a few months, so you hire the team now, rent the storage now, and put the new cook on salary now. You want to be ready. Then the first month’s numbers come in red. This guide lays out how to time new fixed costs so growth does not sink you first. It is the same approach business plan writer Dr. Paul Borosky, DBA, MBA, uses with clients.
Last Updated: 11/08/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Definition
What Do Step Costs Mean?
Short Answer
Step costs are fixed costs that rise in large jumps instead of a little at a time: a full-time hire, a second storage unit, a new lease. Below a certain volume the cost stays flat, then it jumps to a new level. Planning for them means timing each jump to when the work actually arrives, budgeting for the gap, and keeping new costs variable where you can.
Add a fixed cost when demand to carry it is real, not when the plan says you might need it
Doctor Owl, in Plain English
“Being ready early is not free. Every month a cost waits for its work, the rest of the business pays for it.”
How This Guide Works
Need the answer fast? Read the Short Answer above and the numbered steps. Want the full picture? Follow Veronica, an elephant with a spa on the hill from Dr. Paul’s Fabled Forest Business School Series, as she staffs a lodge that has not opened yet. Her story shows up in a few short gold notes along the way. The math sits in one section, clearly marked.
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Meet Veronica Again: Staff for a Lodge That Is Not Open
Some lessons stick better as a story. Dr. Paul’s Fabled Forest Business School Series teaches business through a forest full of small business owners. Doctor Owl, a dry-witted consultant who lives in the Lone Oak, helps them fix the same problems real owners face.
Today he visits Visionary Veronica, the elephant who found an investor for her new lake lodge. The lodge will not open for months. But Veronica wanted to be ready, so she has already hired two lodge staff, rented a linen storehouse by the lake, and put a second cook on monthly pay. Fern, who keeps her books, has just put June’s costs on the desk.
Why It Matters
What Makes Careful Owners Get Caught by New Fixed Costs?
Careful owners want to be ready. They hire before the opening so the team is trained, rent the space before it is needed, and put people on salary so nobody leaves. Each choice makes sense alone.
Together, they add a block of monthly costs that start long before any new revenue does. The existing business has to carry them, and its profit disappears. That is the trap with step costs: they arrive all at once, and the work they are for arrives later.
In the Fabled Forest
The spa took in about 600 coins a month and normally spent 450. With the lodge staff, the storehouse, and the second cook, June’s costs jumped to 630. A business that kept 150 a month would lose 30, before the lodge had a single guest.
Know the Difference
How Are Step Costs Different From Other Fixed Costs?
- Ordinary fixed costs stay flat as long as you stay the same size: your rent, your insurance, your core staff.
- Step costs stay flat until you grow past a point, then jump: one more employee, one more vehicle, one more room.
- Variable costs rise and fall with every sale, like materials. See fixed vs variable costs.
- Why it matters. Each step raises your break-even point. You need more sales every month just to stand still.
In the Fabled Forest
Veronica guessed the lodge would need 720 coins of costs a month, maybe 900. Doctor Owl’s question was simpler: what would carry each new cost until the lodge opened?
The Fix
How Do You Time a New Fixed Cost?
For each new fixed cost, ask two questions: what will pay for it, and starting when? If the answer is nothing yet, either delay it, turn it into a variable cost, or find work it can do now.
New staff can train in the existing business and add capacity there. Space can be rented later or shared. Monthly pay can become a day rate until the work is steady. Each change turns a cost that waits into a cost that earns.
In the Fabled Forest
The two new staff trained at the spa and opened a second treatment room on Saturdays for guests who used to be turned away. The storehouse lease ended on its required notice, and the linens moved into a spa cupboard. The second cook switched to a day rate.
The Numbers
What Did Re-Timing the Costs Change?
Here is Veronica’s June before and after she matched each new cost to work.
| June as planned | June re-timed | |
|---|---|---|
| Money in, regular business | 600 | 600 |
| Saturday treatments by the new staff | +144 | |
| Costs before the lodge | 450 | 450 |
| Two lodge staff | +120 | +120 |
| Linen storehouse | +30 | 0 |
| Second cook | +30 on monthly pay | +10 on a day rate |
| Supplies for Saturdays | +24 | |
| Kept for the month | −30 | +140 |
Step 1: As planned. 600 in − 630 out = −30, paid from the lodge fund.
Step 2: Re-timed. 744 in − 604 out = +140, almost the same as before the lodge plan began.
Step 3: Your version. List every new fixed cost, the month it starts, and the month its work starts. The gap between those two dates, times the monthly cost, is what the rest of the business has to cover.
Illustrative numbers in forest coins, from the book. Use your own costs and start dates.
Step by Step
How Do You Plan Step Costs in a Growing Business?
Four steps before you add the next big fixed cost.
List each new fixed cost with its start date.
Staff, space, equipment, and salaries, with the month each one begins.
Match each one to the work that will pay for it.
Write when that work will start. The gap is what you have to fund.
Shrink the gap.
Delay the cost, make it variable, share it, or give it useful work now.
Budget the gap you cannot avoid.
Set aside the cash to cover it, and put it in your projections month by month.
In the Fabled Forest
Doctor Owl’s scroll had two columns ruled down it: each new fixed cost, and what will carry it, starting when.
Veronica’s Full Story
Did the Lodge Open in the Black?
This page gives you the short version. The book gives you the whole June: the cost sheet Fern underlined twice, a lodge with staff and no guests, the Saturday treatment room, the storehouse by the lake, and the cook who preferred to be paid by the day.
Every chapter of Growth for Small Businesses works the same way. One owner, one problem, one real idea you can use on Monday, plus a one-page worksheet to do it.
A Business Plan Writer’s View
How Should Step Costs Show Up in Financial Projections?
Dr. Paul Borosky, DBA, MBA · Business Plan Writer
In financial projections, Dr. Paul shows step costs as dated jumps, not smooth lines. Each new hire, lease, or vehicle appears in the month it starts, next to the month its revenue starts, so the gap is visible on the page. Lenders look hard at that gap, because it is where growing businesses run out of cash. He then shows how the owner will cover it: from reserves, from a credit line, or by timing the cost later. A projection that hides step costs in an average looks fine until month four. One that shows them honestly, with a plan to carry them, earns trust in underwriting.
FAQ
What Do Owners Ask About Adding Fixed Costs?
What are step costs in business?
When should I hire ahead of growth?
How do I show step costs in financial projections?
Keep Going
Where Can You Learn More About Costs and Cash in a Growing Business?
This is foundation 16 of 20. These pages build on it. New to a term on this page? Every one is in the growth glossary.
Written by Dr. Paul Borosky, DBA, MBA, business consultant and author with 14+ years of experience and 1,000+ clients served. Need the expansion written up for a lender? See business plan writing services.
This page is for general educational purposes only. It is not legal, financial, employment, or other professional advice. Figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.