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Definition
Variable costs are expenses that change in proportion to output or sales — raw materials, stock purchases, packaging, sales commission. They rise as you sell more and fall as you sell less.
In plain terms
They're the costs of each sale itself. Unlike fixed costs, they flex naturally with how busy you are.
Why it matters for your company
Variable costs determine your contribution margin per sale, which drives profitability and pricing. See fixed costs.
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Gross margin
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Fixed Costs: Definition, Examples, and Why the Fixed/Variable Split Matters
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