What are Variable Costs?

A variable cost is an expense that changes with the amount of goods produced or services provided.

For example, a catering company's variable costs include food ingredients, disposable packaging, casual staff wages, and fuel — all of which rise and fall directly with the number of events catered. Understanding these costs allows the owner to accurately price each job to maintain margins at any volume level.

Why it matters: They scale directly with production; a business with high variable costs faces less risk during a downturn than one with high fixed costs.