What is Variable Cost?
Nexa Consultancy | Startup & Finance Glossary
A Variable Cost is a corporate expense that changes in direct proportion to how much a company produces or sells. Unlike fixed costs, which remain constant, variable costs increase as production volume increases and decrease as production volume decreases.
For Startups: Understanding variable costs is essential for calculating contribution margin and unit economics. For a D2C brand, the cost of raw materials and shipping are classic variable costs. For a SaaS business, variable costs might include server usage costs that scale with the number of users or payment gateway fees that are a percentage of revenue.
Example: An e-commerce company sells a t-shirt. The cost of the cotton, the printing, and the shipping for that single t-shirt are all variable costs. The more t-shirts it sells, the higher its total variable costs will be.