Variable Cost
Also called: variable costs
What is Variable Cost?
Variable costs move directly with sales volume — ingredients, packaging, payment gateway charges, aggregator commission and per-order delivery cost. Sell nothing and they are close to zero.
Why Variable Cost matters
Variable cost per unit is what sets contribution margin, and therefore what decides whether an extra order or a discounted campaign is worth doing.
Variable Cost formula
Total variable cost = Variable cost per unit × Units sold
Selling price minus variable cost per unit gives contribution margin.
How Variable Cost works in practice
Work them out per unit rather than as a monthly total, because the per-unit figure is what pricing decisions need. Watch for costs that quietly became variable, such as commission on a growing share of online orders.
Frequently asked questions
Partly. There is a base load regardless of sales plus a portion that rises with activity, which makes it semi-variable.