What does variable cost mean

A good example of variable costs for a piano manufacturer is the cost of piano keys. The total variable costs fluctuate with the amount of pianos that are produced. Fixed costs, on the other hand, do not fluctuate with the production levels. Fixed costs are always the same. Unlike variable costs, a company's fixed costs do not vary with the volume of production. Fixed costs remain the same regardless of whether goods or services are produced or not.

Thus, a company cannot avoid fixed costs. On the other hand, if it produces one million mugs, its fixed cost remains the same. The most common examples of fixed costs include lease and rent payments, utilities, insurance , certain salaries, and interest payments.

The more fixed costs a company has, the more revenue a company needs in order to break even, which means it needs to work harder to produce and sell its products. That's because these costs occur regularly and rarely change.

While variable costs tend to remain flat, the impact of fixed costs on a company's bottom line can change based on the number of products it produces. So, when production increases, the fixed costs drop.

The price of a greater amount of goods can be spread over the same amount of a fixed cost. In this way, a company may achieve economies of scale by increasing production and lowering costs. Corporate Finance. Business Essentials. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses.

Variable Costs vs. Transaction fees: If your business accepts credit cards and needs to pay fees per transaction, for example, this qualifies as a variable cost. Sales commissions: As mentioned above, sales staff are compensated according to the volume of products or services sold. Billable wages: Do you pay employees by the hour? If so, this could be a variable cost as employees will work more billable hours when needed.

However, salaries qualify as a fixed cost. On the other hand, higher fixed costs in relation to variable costs indicate that profits are higher per-unit once the break-even point has been achieved. GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices.

Find out how GoCardless can help you with ad hoc payments or recurring payments. Sign up Contact sales. Credit card merchant fees can be costly, especially for small businesses.

Skip to content Open site navigation sidebar. Why GoCardless? For use case Subscription payments Recurring payments built for subscriptions Invoice payments Collect invoice payments automatically. For small business Overview Improve your cashflow Keep track of payments Reduce costs Reduce failed payments Increase conversions. For enterprise Overview Reduce churn Reduce international barriers Reduce time to get paid Reduce operational costs Reduce conversion risk.

Customers Customer stories Customers love us Customer referral program. Breadcrumb Resources Accountants.