Fixed Costs vs Variable Costs
The split between fixed and variable costs determines contribution margin and break-even volume.
Fixed costs
Fixed costs are costs that usually stay in place over a period of time. Examples include rent, base software subscriptions, insurance, equipment leases, salaries, and minimum platform fees.
Fixed does not mean permanent. It means the cost does not directly change with each unit sold in the calculation period.
Variable costs
Variable costs change with each product sold or job delivered. Examples include materials, packaging, payment processing fees, shipping subsidies, sales commissions, and per-unit contractor cost.
Why the difference matters
Contribution Margin = Selling Price - Variable Cost
Break-even Units = Fixed Costs / Contribution MarginIf a cost belongs in variable cost but is treated as fixed, contribution margin will look too high. If a fixed cost is treated as variable, the break-even estimate can become confusing or overly conservative.
Example
A product sells for $50. Materials, packaging, and payment fees total $18 per unit. Contribution margin is $32 per unit. If monthly fixed costs are $6,400, break-even volume is 200 units.
If the business forgot a $4 per-unit shipping subsidy, variable cost is actually $22, contribution margin is $28, and break-even volume rises to about 229 units.
Use the calculator
Use the Break Even Calculator after you separate fixed costs from variable costs. Use the break-even guide for the full formula walkthrough.
FAQ
What is a fixed cost?
A fixed cost is a cost that generally stays in place over a period of time, even if unit sales change.
What is a variable cost?
A variable cost changes with each unit sold or each job delivered, such as materials, payment fees, or packaging.
Why does the difference matter?
Break-even analysis uses fixed costs and contribution margin. Misclassifying costs can make the break-even point wrong.