Variable costs are business expenses that go up or down depending on how much you produce or sell. The more you make, the more you spend — and vice versa. They are the opposite of fixed costs (like rent), which stay the same regardless of output.
Common examples include raw materials, packaging, shipping fees, and sales commissions. If a t-shirt company produces 1,000 shirts, it needs 1,000 units of fabric. If it produces 5,000 shirts, the fabric cost goes up proportionally.
Understanding variable costs is key to pricing and profitability. If your variable cost per unit is $10 and you sell at $25, you know exactly how much gross profit each sale generates — and that helps you plan for growth.