Variable Costs are business expenses that rise and fall with your sales volume. Sell more products, pay more in variable costs. Sell nothing, these costs drop to zero. E-commerce businesses track variable costs to calculate and understand true profitability per order.
What are Variable Costs?
Variable costs change based on production or sales activity. They represent the direct cost of fulfilling each order.
For e-commerce, typical variable costs include:
- Product cost or cost of goods sold (COGS)
- Shipping and fulfillment fees
- Payment processing fees (2-3% per transaction)
- Packaging materials
- Sales commissions
- Returns processing
Variable costs differ from like rent or software subscriptions, which stay constant regardless of sales.
How Variable Costs Affect Profitability
Your contribution equals revenue minus variable costs. This tells you how much each sale contributes toward covering fixed costs and generating profit.
Example:
- Product sells for: $50
- Variable costs: $25 (product $15, shipping $7, payment fee $3)
- Contribution margin: $50 - $25 = $25 per unit
Lower variable costs mean higher contribution margin and more profit per sale.
Use our Break-Even Calculator to see how your variable costs affect and profitability.
