Variable costs
Variable costs are the costs that rise and fall in direct proportion to sales volume - landed COGS, fulfilment, shipping, payment fees and variable marketing. They are measured per order or per unit, and ecommerce operators subtract them from revenue to find contribution margin: the profit each sale actually adds.
| Variable | What it covers |
|---|---|
| Landed COGS | Unit cost plus freight-in plus duty - the true cost of getting the product to your warehouse. |
| Fulfilment, shipping & payment fees | Pick-pack, outbound shipping, and the payment and transaction fees charged on the order. |
| Variable marketing | Ad spend, affiliate commissions and promo cost that scale with orders. |
Worked example
Example numbers. This is the same A$120 order stepped down on The Math - variable costs are everything removed between revenue and CM3.
What is a good variable cost ratio?
There is no universal benchmark, because the right level is set by your margin structure. A heavy, low-priced product carries a different shipping ratio to a light premium one; consumables carry different COGS to apparel; and how much of your marketing truly scales with orders varies brand by brand. The useful question is not the ratio itself but what it leaves behind: whether the contribution margin left after variable costs covers your fixed costs at a volume you can actually reach. Compute your own with the free contribution margin calculator.
Variable costs vs related metrics
| Metric | What it measures | How it differs from variable costs |
|---|---|---|
| Fixed costs | Costs that stay flat regardless of volume - rent, salaries, software. | The other half of the cost base. Variable costs move with every order; fixed costs move with time. |
| Landed COGS | Unit cost + freight-in + duty. | One component of variable costs - the largest for most brands, but not the whole set. |
| Contribution margin | Revenue minus variable costs. | The result of the subtraction: what each sale contributes after its variable costs. |
| Unit economics | The profit and loss of one order, customer or SKU. | The discipline variable costs feed - unit economics is built by removing them step by step. |
Common mistakes
- Treating shipping as overhead. Carriers bill monthly, but the cost scales per parcel - it belongs in variable costs, not fixed.
- Skipping payment and transaction fees. They are netted out of the payout before the cash lands, so they never appear as a bill you paid - but they are a real variable cost on every order.
- Calling ad spend fixed. Performance spend scales with orders; the step-down removes it as variable marketing at CM3.
- Coalescing missing costs to zero. If you do not know a SKU's freight or duty, show a gap - a fabricated zero flatters the margin.
- Using one blended average. Variable costs differ order by order and SKU by SKU; an average hides the loss-makers.
Variable costs FAQ
Related
Blufire S2 Unit Economics maps every variable cost on every order, customer and SKU in the Profitability Cube and the CM waterfall & bridge. The Math teaches the full step-down free.
Updated July 2026