Fixed vs. Variable Expenses: Key Differences and How They Affect Business Profitability

Fixed expenses generally remain unchanged in total as activity levels change within a relevant range, such as store rent. Variable expenses rise or fall with sales or production volume, such as raw materials and sales commissions. Understanding both helps businesses calculate contribution margins and break-even points.

For example, a product selling for 100 with variable costs of 60 has a contribution margin of 40. With fixed costs of 8,000, the business must sell 200 units to break even, assuming constant prices and costs. Try Cash Cloud for free to explore expense tracking, sales, and accounting tools.