Fixed vs. Variable Costs

Definition

Fixed costs do not change with volume in the short term (rent, salaried payroll). Variable costs scale with each unit of business (cloud usage, payment fees, support per ticket).

Formula

Total cost = Fixed costs + (Variable cost per unit x Units)

Worked Example

Fixed: $45,000/month. Variable: $10.66 per customer. At 2,000 customers:

Total = $45,000 + ($10.66 x 2,000) = $66,320
Average cost per customer = $33.16

At 4,000 customers:
Total = $45,000 + $42,640 = $87,640
Average cost per customer = $21.91  <- scale economics

Interpretation & Pitfalls

The fixed/variable split determines operating leverage: high fixed cost means losses at low volume but rapidly expanding margins past break-even.

In TupicFinance

Cost items tagged by category and linked to usage drivers let the platform separate scale-dependent from scale-independent cost.