Variable Costs
Definition
Costs that rise and fall with sales volume, like product cost, marketplace fees, fulfillment, shipping, payment processing and most ad spend.
Want a deeper explanation?
Separating variable costs from fixed costs is what makes contribution margin and break-even analysis possible.
E-commerce brands often have higher variable costs than they think, because fees and shipping are spread across many accounts. Watch for: variable costs rising faster than sales, a sign of fee increases, heavier discounting or rising ad costs.
Example
Each $50 order carries $18 of product cost, $9 of fulfillment and fees, and $12 of ad spend, so $39 of variable costs scale with every order.