Variable costs are expenses that change depending on how much you sell or produce. The more sales you make, the more these costs go up.
Examples:
- Wholesale cost of products
- Credit card processing fees
- Shipping and delivery expenses
- Packaging materials
- Hourly staff wages (if hours fluctuate with traffic)
Why It Matters
Variable costs directly impact your cost of goods sold (COGS) and your gross profit. Understanding them helps you price your products properly and make informed decisions about promotions and scaling.
Tip: Variable costs rise with activity—but they also stop when sales stop. Keeping a good handle on them helps protect your margins, especially during high or low seasons.