Variable Costs

Costs that change based on business activity.

QUICK ANSWER

Variable Costs are expenses that increase or decrease depending on the level of production or sales, such as raw materials or transaction fees.

In depth

Variable Costs fluctuate directly with business activity, meaning they rise as production or sales increase and fall when activity decreases. Common examples include manufacturing costs, payment processing fees, and shipping expenses. These costs are essential for calculating contribution margin and unit economics. For startups, understanding variable costs is critical to pricing products correctly and ensuring profitability at scale. Lower variable costs can improve margins and make the business more efficient as it grows.