Every cost in your business is either fixed, variable, or a mix of the two. Knowing which is which is not accounting theory — it is what lets you calculate your break-even point, price with confidence, and understand how profit changes as sales rise or fall. Here is a clear, practical guide.
What are fixed costs?
Fixed costs stay the same regardless of how much you sell. Whether you have a busy month or a quiet one, you still pay them. Typical fixed costs include rent, salaries, insurance, software subscriptions, and loan repayments. They are the baseline you must cover before you make any profit.
What are variable costs?
Variable costs rise and fall with your sales. Sell more and they go up; sell less and they go down. The clearest example is the cost of the stock you sell (cost of goods sold), plus things like packaging, payment-processing fees, and sales commissions.
Fixed vs variable costs at a glance
| Fixed costs | Variable costs | |
|---|---|---|
| Behaviour | Stay the same | Change with sales |
| Examples | Rent, salaries, insurance, software | Stock/COGS, packaging, commissions, card fees |
| Per unit | Falls as you sell more | Stays roughly constant per unit |
| Risk | Must be paid even in a slow month | Scales down when sales drop |
Semi-variable costs
Some costs are a mix — a "semi-variable" or "semi-fixed" cost has a fixed base plus a variable part. A phone plan with a monthly fee plus usage charges, or staff on a base wage plus commission, are common examples.
Why the difference matters
Splitting costs this way unlocks two of the most useful numbers in business:
- Break-even point — how much you must sell to cover your fixed costs. See calculating your break-even point.
- Contribution margin — selling price minus variable cost, i.e. how much each sale contributes toward fixed costs and profit.
Together they tell you how pricing and volume drive profit, which is the foundation of pricing products for profit.
Using this to grow
Because fixed costs are spread across every sale, profit grows faster than revenue once you pass break-even — each additional sale mostly drops to the bottom line. That is why increasing sales volume, while keeping fixed costs steady, is such a powerful path to profit.
See your costs clearly
You can only manage this split if your books separate cost types cleanly. RushFlow's accounting records cost of goods on every sale and organises your expenses, so your margins, contribution and break-even are visible without a spreadsheet.