what is the difference between a fixed cost and a variable cost?
Fixed costs stay the same regardless of how much you produce or sell, while variable costs move up and down with your level of activity.
Quick Scoop
Think of running a small bakery:
- You pay rent whether you bake 0 or 10,000 cupcakes ā fixed cost.
- You buy flour, sugar, and cupcake liners for each cupcake you actually bake ā variable cost.
Thatās the core difference: fixed is about time and capacity (just for existing), variable is about volume (only when you produce/sell).
Simple definitions
- Fixed cost :
A cost that does not change when production or sales change within a normal range.
* Examples: monthly rent, insurance, full-time salaried staff, some software subscriptions.
- Variable cost :
A cost that rises or falls directly with production or sales volume.
* Examples: raw materials, packaging, sales commissions, perāunit shipping.
Key differences at a glance
| Aspect | Fixed cost | Variable cost |
|---|---|---|
| Depends on | Time/capacity (stays the same in the short term). | [5][3]Output or sales volume (changes with activity). | [3][1]
| Behavior when you produce more | Total fixed cost stays constant; fixed cost per unit falls as you spread it over more units. | [6][5]Total variable cost rises; variable cost per unit usually stays similar. | [9][3]
| If you produce zero | You still pay it (e.g., rent, salaries). | [9][1][3]It drops to zero (no production, no materials/commissions). | [9][3]
| Also called | Overhead, period cost. | [5][3]Direct or prime cost. | [3][5]
| Planning focus | Capacity decisions, break-even point, longāterm commitments. | [8][3]Pricing, scaling up/down quickly, margin per unit. | [8][3]
Mini example story
Imagine you start a small online Tāshirt brand this year:
- You pay 1,000 a month for a small studio and 500 for a design software license ā you pay 1,500 even if you sell nothing this month (fixed).
- Each shirt costs you 6 in fabric, printing, and packaging; if you sell 50 shirts, thatās 300, if you sell 500 shirts, thatās 3,000 (variable).
So:
- Your fixed costs are the āentry feeā to be in business at all.
- Your variable costs are the āper unit ticketā you pay only when activity happens.
Why this matters today
In 2020sā2026 style businesses (SaaS, creators, small eācommerce), many costs that used to be fixed (like infrastructure or software) are becoming more usageābased, effectively turning into variable or semiāvariable costs. Understanding which of your costs are truly fixed vs variable helps you:
- Calculate your break-even point (how many units you must sell to cover fixed costs).
- Decide whether scaling up will be profitable, based on contribution margin (price minus variable cost).
TL;DR
- Fixed cost = same total amount, regardless of output, at least in the short run.
- Variable cost = total changes in line with how much you produce or sell.
Information gathered from public forums or data available on the internet and portrayed here.
