The core difference
Fixed costsstay the same whether you sell one unit or a thousand. They’re the cost of simply being open. Variable costs exist only when you make a sale, and they grow in lock-step with volume.
Fixed vs variable costs
Splitting your costs into fixed and variable is the groundwork for pricing, contribution margin and break-even. Here’s how to tell them apart.
Common examples
Fixed costs
- Rent & premises
- Salaried staff
- Insurance
- Software subscriptions
- Equipment & tools
- Accounting & legal retainers
Variable costs
- Raw materials
- Packaging
- Shipping to customers
- Payment & marketplace fees
- Piece-rate / hourly labour
- Sales commissions
Why the split matters
The classification feeds directly into the numbers that decide whether you make money:
- Contribution margin = price − variable cost per unit. See contribution margin.
- Break-even point= fixed costs ÷ contribution margin. See break-even point.
As you grow, fixed costs spread over more units, so your cost per unitfalls — the effect behind economies of scale. That’s why volume can turn a thin-looking product into a profitable one.
Pricing & margin guides
How to Calculate Profit Margin
The profit margin formula explained with step-by-step worked examples.
Margin vs Markup
Why they're not the same, the formulas for each, and a conversion table.
How to Price a Product
A step-by-step pricing method that protects your margin from day one.
What Is a Good Profit Margin?
Healthy margin benchmarks by industry and how to know where you stand.
How to Calculate Break-Even Point
The break-even formula, contribution margin, and how many units you must sell.
Cost of Goods Sold (COGS)
What counts as COGS, what doesn't, and the formula to calculate it.
Gross Profit vs Net Profit
The difference between the two, with a worked income-statement example.
Average Order Value (AOV)
The AOV formula, why it matters, and proven ways to increase it.
How Discounts Affect Profit Margin
Why a small discount cuts profit hard, and the extra volume needed to break even.
Contribution Margin
What contribution margin is, the formula, and how it drives break-even.
Keystone Pricing
The classic 2x markup rule — what it is, the margin it gives, and when to use it.
Retail vs Wholesale Pricing
How to price for both channels without eroding your retail margin.
How to Calculate ROI
The return on investment formula with worked examples for stock and ads.
How to Increase Profit Margin
Ten practical, tested ways to widen your margin without losing sales.
More free calculators
Profit Margin Calculator
Sale price, margin, markup, or cost — four modes for any scenario.
Etsy Profit Calculator
Net profit after Etsy listing, transaction, payment, and Offsite Ads fees.
Amazon FBA Profit Calculator
Net profit, margin and ROI after Amazon referral, fulfillment and storage fees.
eBay Profit Calculator
Net payout after eBay's final value fee, per-order charge and international fees.
Shopify Profit Calculator
Real profit per sale after Shopify payment processing, surcharges and plan share.
Frequently asked questions
What is the difference between fixed and variable costs?
Fixed costs don't change with how much you sell — rent, salaries, insurance, software. Variable costs rise and fall with each unit sold — materials, packaging, shipping, payment fees. Total costs are the two added together.
Is labour a fixed or variable cost?
It depends. A salaried employee paid the same regardless of output is a fixed cost. Piece-rate or hourly labour that scales directly with units produced is a variable cost. Many businesses have a mix of both.
Are marketplace fees fixed or variable?
Marketplace and payment fees are variable costs, because they're charged per sale. A percentage fee (like Etsy's 6.5%) scales with the sale price, and a per-order fee is incurred only when an order happens. Both belong in your variable cost per unit.
Why does the fixed vs variable split matter?
It drives two key calculations: contribution margin (price minus variable cost) and break-even point (fixed costs divided by contribution margin). Misclassifying costs throws both off, which can lead to underpricing or unrealistic sales targets.
What are semi-variable costs?
Semi-variable (or mixed) costs have both a fixed and a variable part — for example a phone plan with a fixed monthly fee plus per-use charges, or utilities with a base rate plus usage. For analysis, split them into their fixed and variable components.