DEFINITION of 'Step Costs'
Business expenses that are constant for a given level of activity, but increase or decrease once a threshold is crossed. Step costs are those costs that change when a business' production levels increase or decrease. When depicted on a graph, these types of expenses will be represented by a stairstep pattern.
BREAKING DOWN 'Step Costs'
For example, a coffee shop might be able to serve 30 customers an hour with one employee. If the shop receives anywhere from zero to 30 customers per hour, it will only need to pay the cost of having one employee. If the shop begins receiving 31 or more customers per hour, it must hire a second employee, increasing its costs of doing business.