2 min read
Definition
Variable costs rise and fall with how much a business produces or sells — materials, direct labour, packaging, delivery. They contrast with fixed costs, which stay broadly the same regardless of volume.
In plain terms
Sell more and these costs go up; sell less and they fall. They are the costs directly tied to each unit of output, unlike rent or salaries that you pay anyway.
Why it matters for your company
Splitting costs into variable and fixed is the foundation of break-even and contribution-margin analysis, which tell you how each sale and each price change affects profit. It is essential for pricing decisions.
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Fixed vs variable costs
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