Finance and accounting
Variable cost
A cost that rises and falls with how much you make.
Facts checked against sources onWhat does Variable cost mean?
A variable cost changes directly with how many units you produce or sell. The materials in each product, the shipping for each order and sales commissions are variable costs. Make twice as much, and you pay roughly twice the variable cost.
Where does it come up in case interview prep?
- Unit economics in any businessLesson in How industries work: the toolkit
- Fixed and variable costs, operating leverage, and unit economicsLesson in Business basics for non-business learners
- Scale and scope: when being bigger lowers costLesson in Why some businesses win: competitive advantage and the economics of strategy
- The business case for automation: payback, utilization risk, and peopleLesson in Making operations better, and planning for what can go wrong
- Scenario planning: base, upside, downside, and deciding when you cannot knowLesson in Making operations better, and planning for what can go wrong
- Diagnosing a profit decline: the reference caseLesson in Profitability
- How healthcare systems work: patients, providers and payersLesson in Healthcare providers and payers
- How hospitals and insurers make money: costs, unit economics and operationsLesson in Healthcare providers and payers
Related terms
- Fixed costA cost that stays the same when volume changes, within a normal range.
- ContributionWhat each sale adds after its own variable cost.
- Marginal costThe extra cost of making one more unit.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Semi-variable costA cost with a fixed part and a part that moves with volume.
- Step costA cost that is flat over a range, then jumps.
Learn it in context
See Variable cost at work in a lesson from How industries work: the toolkit, with checks as you go.
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