Running a business in the Philippines demands strategic planning around fixed and variable costs spanning labor, facilities, utilities, taxes, insurance, and compliance that vary significantly by region, industry, and scale. Metro Manila operations face premium rates—PHP 695 daily minimum wage, PHP 700-1,700/sqm commercial rents—while provinces deliver 30-50% savings but challenge logistics access and talent availability, making location strategy fundamental to financial sustainability.
Fixed Costs Breakdown
Fixed costs establish predictable monthly overhead persisting regardless of sales activity, typically comprising 40-60% of SME operating expenses in urban locations.
Running a business baseline includes commercial rent (PHP 70,000-170,000 for 100 sqm Metro Manila offices), full-time salaries plus statutory contributions (SSS 14.5%, PhilHealth 5%, Pag-IBIG 4%), insurance premiums (PHP 10,000-50,000 annual fire coverage), professional fees (PHP 50,000-200,000 yearly BIR/audit services), and utilities (PHP 50,000-65,000 electricity). Provincial locations reduce facilities 30-50% while maintaining uniform labor compliance nationwide, requiring upfront cash flow allocation for lean periods.
Labor and Payroll Expenses
Labor represents the largest expense category, combining base wages with mandatory statutory contributions that inflate total payroll burden by 25-35%.
- NCR minimum wage: PHP 695 daily (2026 rates); Regions I-IVB: PHP 435-610
- SSS employer contribution: 14.5% of monthly salary ceiling (PHP 30,000)
- PhilHealth: 5% total premium (split equally with employee)
- Pag-IBIG: 4% up to PHP 5,000 monthly ceiling per employee
- 13th-month pay: One month’s salary due in December annually
- Service incentive leave: 5 days cash equivalent annually
For 10-person teams with average monthly salaries of PHP 20,000, total payroll ranges from PHP 250,000 to PHP 300,000, including overtime premiums (125-200%). Provincial wage savings (30-40%) offset by uniform statutory requirements make accurate forecasting essential during incorporation planning.
Facility Rent and Maintenance
Commercial space constitutes a major fixed overhead with rates varying dramatically by business district, property class, and lease structure.
- Metro Manila prime areas: PHP 700-1,700/sqm/month (Makati CBD, BGC, Ortigas)
- 100 sqm office range: PHP 70,000-170,000 monthly base rent
- Provincial business districts: PHP 400-800/sqm (30-50% savings)
- Annual maintenance: 1-2% of property asset value
- Delivery vehicle fleets: PHP 5,000-10,000/unit monthly depreciation/servicing
Location decisions represent critical cost levers—urban hubs justify premium rates through talent access and infrastructure, while provincial sites reduce overhead but complicate logistics and client proximity for service-oriented businesses.
Utilities and Basic Infrastructure
Core utilities blend fixed minimum charges with consumption-based scaling across electricity, water, and connectivity services.
- Electricity (Meralco commercial): PHP 10-13/kWh generation charge
- 100 sqm office usage: 5,000 kWh monthly = PHP 50,000-65,000
- Water (Maynilad/Manila Water): PHP 136/cu.m. minimum charge
- Business broadband: PHP 5,000-15,000 (fiber optic 200-500 Mbps)
- 24/7 operations uplift: BPO/manufacturing adds 40-60% power exposure
Energy efficiency measures like LED lighting, power factor correction, and load management deliver 10-20% savings, particularly valuable for continuous operations where electricity dominates utility spend.
Insurance Coverage Needs
Business insurance establishes predictable annual premiums scaled to operational risks, location hazards, and regulatory requirements.
- Fire insurance (small premises): PHP 10,000-50,000/year coverage
- General liability: PHP 20,000+ annually for public exposure
- Employee group plans: 1-3% of total payroll budget
- Typhoon zone premiums: 20-30% uplift for coastal/urban areas
- Expatriate coverage: Workers’ comp + health mandatory for foreign staff
These policies supplement statutory SSS/PhilHealth protection—annual reviews ensure adequate limits without over-insuring, while expatriate operations demand comprehensive personnel coverage meeting DOLE standards.
Professional Services and Fees
External expertise manages compliance, accounting, and advisory through predictable annual retainers and project fees.
- BIR audits/financial statements: PHP 50,000-200,000/year (SMEs)
- Mayor’s permit (revenue-based): PHP 5,000-20,000 annually
- Barangay clearance: PHP 200-1,000 per location
- Payroll processing: PHP 10,000-30,000/month (10+ employees)
- SEC/BIR registration: PHP 6,000-10,000 initial setup
- Sector licenses (FDA/DENR): PHP 5,000-20,000 annually
BusinessRegistrationPhilippines.com bundles registration with renewals totaling PHP 10,000-50,000 yearly across agencies, eliminating dedicated compliance staff overhead while ensuring uninterrupted operations.
Variable Costs Dynamics
Variable costs scale directly with production volume or sales activity, requiring sophisticated inventory management to protect gross margins.
Running a business variable expenses—raw materials (30-60% COGS), sales commissions (5-15% revenue), tiered utilities—consume 30-40% sales in goods-oriented operations. Seasonal demand triggers controlled scaling; ERP systems optimize inventory turnover, preventing capital immobilization during demand surges or supply disruptions.
Raw Materials and Inventory
Raw materials dominate variable costs amid import dependency and global commodity volatility, affecting landed pricing.
Bulk procurement secures 5-15% discounts but ties working capital; seasonal inputs (apparel fabrics, agricultural commodities) introduce pricing swings managed through diversified suppliers and ERP demand forecasting. Import duties/VAT inflate costs—PEZA registration enables duty-free raw materials for exporters, balancing compliance investment against material savings.
Sales-Related Expenses
Performance-based incentives scale with revenue peaks through commissions, promotional campaigns, and controlled overtime.
Sales commissions average 5-15% of gross revenue; digital marketing campaigns are optimized via analytics; overtime is limited to 125-200% DOLE premiums through strategic staffing. High-demand periods balance service levels against escalation via temporary hires, capacity planning, and avoiding unchecked payroll inflation during promotional peaks.
Tax Liabilities in Detail
The Philippine tax regime blends fixed minimums with progressive rates, impacting monthly cash flow planning.
Corporate income tax 25% standard rate (20% preferential for small firms with ≤PHP 5M income/≤PHP 100M assets); VAT 12% threshold PHP 3M annual sales; 3% percentage tax alternative; 2% MCIT applies to early years. Monthly/quarterly/annual BIR filings are mandatory regardless of activity; April 15 ITR deadline is critical. CREATE incentives offer ITH (4-17 years), 5% GIT for qualifying enterprises requiring performance compliance.
Annual Compliance Renewals
Mandatory yearly government interactions aggregate PHP 10,000-50,000, with operational suspension risks for missed deadlines.
- BIR registration renewals: PHP 500+ documentary stamps
- Mayor’s business permit: PHP 5,000-20,000 (revenue-based)
- Barangay clearance: PHP 200-1,000 per business location
- Sector licenses (FDA/DENR): PHP 5,000-20,000 annually
- SEC General Information Sheet: PHP 2,000-5,000 filing fees
Outsourced calendar management eliminates the need for dedicated compliance staff while ensuring uninterrupted licenses across the SEC, BIR, LGUs, and industry-specific agencies.
Regional Differences in Expenses
National Capital Region premium costs contrast with provincial savings, creating strategic location trade-offs.
NCR delivers daily wages of PHP 695 and rents of PHP 700-1,700/sqm, with superior talent density/infrastructure.Regions I-IVB offer PHP 435-610 wages, with PHP 400-800/sqm (30-50% savings), offset by 20-30% higher logistics costs. Provincial utilities save 15-25% but compromise reliability—back-office/manufacturing favor provinces while client-facing operations justify urban premiums.
Effective Budgeting Practices
Structured financial planning categorizes expenses with forward-looking projections, ensuring cash flow resilience through economic cycles.
- Labor allocation: 25-35% of total operating spend
- Facilities/utilities: 15-20% combined overhead
- Materials/COGS: 30-40% for goods-based businesses
- Compliance/taxes buffer: 5-10% contingency allocation
- Inflation forecasting: 3-5% annual adjustment factor
QuickBooks/Xero implementations enable real-time P&L tracking with quarterly reviews, adapting to wage adjustments, utility rate changes, and regulatory updates, while outsourcing statutory renewals caps fixed accounting overhead.
Cost Optimization Tactics
Proactive measures across procurement, energy management, and financial discipline deliver measurable overhead reductions.
- Supplier volume discounts: 5-15% raw material savings
- Energy audits/LED upgrades: 10-20% utility bill reductions
- Full VAT input claims: 8-12% purchase cost recovery
- Flexible lease renewals: Avoid long-term rate escalation locks
- Quarterly P&L audits: Early overrun detection and correction
These tactics—combined with performance-based incentives—target 10-15% annual cost improvements while maintaining service quality and regulatory compliance, positioning businesses for sustainable margin expansion.
Final Insights
Running a business in the Philippines demands comprehensive cost awareness across labor (PHP 250K-300K monthly teams), facilities (PHP 70K-170K rent), utilities (PHP 50K+ power), and compliance (PHP 10K-50K annual). Fixed costs establish a baseline, and variable costs scale strategically. Regional trade-offs balance talent versus logistics. Professional budgeting prevents PHP 100K+ penalties while optimization delivers 10-15% savings.
Optimize your Philippine Operations
Contact BusinessRegistrationPhilippines.com for customized cost analysis, compliance roadmaps, and strategic location planning tailored to your industry and growth objectives:
- Contact Us Here
- Fill Out the Form Below
- Call us at +63 (02) 8540-9623