The short answer: fixed costs stay the same no matter how much you sell (like rent); variable costs rise and fall with sales (like the cost of goods). Understanding the split is the foundation for pricing, break-even and surviving a slow month.
Fixed costs
These don’t change with your sales volume in the short term: rent, salaried staff, insurance, software subscriptions. Whether you sell a little or a lot this month, they’re roughly the same — which is why a quiet month is dangerous: the fixed costs still arrive.
Variable costs
These move with sales: the cost of the goods you sell, transaction fees, hourly wages tied to trading, packaging. Sell more and they rise; sell nothing and most disappear.
Why the split matters
- Pricing — your price must cover the variable cost of each item and contribute to fixed costs.
- Break-even — the split is exactly what a break-even calculation needs.
- Planning — high fixed costs mean higher risk in slow periods; more variable cost structures flex with demand.
A quick example
Two shops each make 500,000 in sales. One has high fixed costs (big rent, salaried team); the other keeps costs variable (smaller space, flexible staff). In a strong month they look similar. In a weak month, the high-fixed-cost shop feels the squeeze far more, because its costs don’t fall with sales. Neither is “wrong” — but knowing your structure tells you your risk.
Some costs are a mix
A few costs are semi-variable — a base amount plus a usage part (some utilities, for example). Split them roughly into their fixed and variable portions for planning; precision isn’t the point, awareness is.
See your cost structure
RushFlow tracks your costs and expenses so you can see what moves with sales and what doesn’t — the basis for smarter pricing and planning. See the live demo.