Business & Sales

What Are Variable Costs?

Variable costs are costs that change in proportion to production or sales volume, such as raw materials, packaging, shipping, payment processing fees, and sales commissions. Total variable cost = variable cost per unit × number of units.

Role in Pricing

Price minus variable cost per unit is the contribution margin, which is what each sale contributes toward fixed costs and profit.

Example

If each unit costs 12 in materials, 3 in packaging, and 5 in shipping, the variable cost per unit is 20. Selling 500 units gives total variable costs of 10,000, while selling 1,000 gives 20,000.

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🔗 Related Terms

Fixed Costs Contribution Margin Cost of Goods Sold (COGS) Unit Economics

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.