Variable Costs

Definition

Variable costs scale with volume (payment fees, shipping, returns, usage-based infrastructure). They determine contribution margin.

Example

If COGS is $20 and payment fees are $3 per order, variable cost per order is $23.

How to use it

• Variable costs drive contribution margin and break-even analysis.
• Some costs are semi-variable (fixed base plus usage spikes).
• Model variable costs per unit to estimate scale economics.
• Track variable costs by segment when mix shifts are large.
• Recalculate variable cost per unit when suppliers change pricing.

Common mistakes

• Treating fixed overhead as variable and overstating contribution margin.
• Ignoring refund, chargeback, or returns costs.
• Using averages when costs vary materially by segment.
• Excluding usage-based infrastructure costs in SaaS.
• Mixing variable cost definitions across periods.

Why this matters

This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.

Practical checklist

• Write a 1-line definition for "Variable Costs" that your team will use consistently.
• Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
• Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
• Use a calculator that references this term (e.g., Break-even Pricing Calculator) to sanity-check assumptions.
• Read the related guide (e.g., Break-even pricing: contribution margin, break-even units, and profit) for context and common pitfalls.

Where to use this on MetricKit