Plain definition
Step costs stay constant across a limited activity band, then rise when an additional resource or capacity block is needed. They are neither smoothly fixed nor smoothly variable across all volumes.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A call centre can handle up to 1,000 calls a week with one supervisor costing a month. Forecast calls of 1,050 require a second supervisor, so the extra 50 calls trigger the full step. A price based only on average cost per call would miss that threshold.
Why it matters
Step costs make small volume changes near capacity unusually important. The cost of the next unit can be far higher at the boundary than below it.
Practical consequence
Map capacity bands and their trigger points, then test demand scenarios around each threshold. Keep the timing of hiring, equipment, and contracts visible in the cash forecast.