In cost accounting and managerial accounting, it refers to a situation where a company (manufacturer) reduces the number of its products, and has as a result to spread its fixed manufacturing overhead costs to a lesser number of products. The low volume (product lines) will not justify its administrative expenses.

Downward demand spiral may also come into existence to the user of a common resource (e.g., a service): fixed costs, which are large to be covered by a few users, are allocated to a wide base of users. When users start to opt out, declining to use that resource for the costs allocated, the users’ base shrinks, leading to increases in allocated costs, which further drive out more users- who simply opt for a decreased use. Consequently, the fixed costs are allocated to a decreasing number of users, more of whom tend to reduce reliance on the resource. This process goes on until all remaining users choose to decline payment of fixed costs.

This situation is also known as a death spiral.