Fixed vs variable costs

What is fixed vs variable costs?

Fixed costs stay the same regardless of how much you sell, rent, salaries, software subscriptions. Variable costs rise and fall with volume, materials, payment processing, shipping. Most businesses run a mix, and knowing the split tells you your break-even point, how profit scales as you grow, and how much cushion you have when revenue dips.

Worked example

Why it matters for fast-growing companies

Your fixed-to-variable mix defines your operating leverage and your risk. Heavy fixed costs mean big profits once you clear break-even, but painful losses if sales fall short. Heavy variable costs are safer but cap your upside. Founders use this split to model break-even, price products, and decide whether to commit to fixed overhead.

Related terms

• Unit economicsContribution marginContribution margin is what's left from a sale after subtracting the variable costs of delivering it, the amount each sale contributes toward covering fixed costs and then profit.
• Unit economicsCost of goods sold (COGS)Cost of goods sold (COGS) is the direct cost of producing and delivering what you sell, raw materials, direct labor, payment processing, hosting for a software product.
• Accounting & closeOperating expenses (OpEx)Operating expenses are the costs of running your business that aren't tied directly to producing what you sell, salaries, rent, marketing, software, and admin.
• Cash & runwayStartup financial modelA startup financial model is a spreadsheet that projects a company's future finances from a set of assumptions about growth, hiring, and costs.

Frequently asked questions