Variable cost

A variable cost is a cost that rises and falls with the number of orders you take, such as product cost, shipping and payment fees.

By Berend Vrakking, founder of Product Metrics. Updated 7 October 2026.

Formula

Variable cost per order = product cost + shipping + payment fees + packaging + returns

Revenue minus variable costs is contribution margin, and break-even ROAS is 1 ÷ contribution margin %. Fixed costs such as rent and salaries stay out.

Example

Worked example, one order
Item	Amount
Order value (excl. VAT)	€80.00
Product cost	−€36.00
Shipping	−€6.00
Payment fees (3%)	−€2.40
Packaging	−€1.60
Returns allowance (10% of orders × €20.00 per return)	−€2.00
Total variable cost	€48.00
Contribution margin (€80.00 − €48.00)	€32.00 (40%)

Variable costs take €48.00 of an €80.00 order. The €32.00 left pays for ads and fixed costs, so break-even ROAS is 1 ÷ 0.40 = 2.5. Illustrative data.

For one product, and for an account

Variable cost differs from product to product. Take a second product at the same €80.00 price and €36.00 product cost that is heavy to ship (€14.00) and comes back more often (€6.00 returns allowance). Its variable cost is €60.00, its contribution margin 25% and its break-even ROAS 4.0, against 2.5 for the first. Illustrative data.

Average the two and you get a variable cost neither product has. The same ROAS can be a profit on one product and a loss on the other, and only variable costs counted per product let POAS, profit on ad spend, show which products earn their ad spend.

Common mistake

Counting ad spend as a variable cost and then comparing it with ad spend again. Break-even ROAS and POAS already account for ads, so the margin must come before ad spend or the break-even comes out too high.

Questions

What is the difference between variable and fixed costs?

Variable costs change with each order: product cost, shipping, payment fees, packaging and returns. Fixed costs stay the same within a month whatever you sell, such as rent, salaries and software subscriptions with a flat fee.

Is cost of goods sold a variable cost?

Yes. Each unit you sell adds its product cost. Revenue minus cost of goods sold is gross margin; take off the other variable costs too and you get contribution margin.

Is ad spend a variable cost?

It moves with sales, but it belongs on the other side of the comparison: break-even ROAS and POAS set profit before ads against ad spend. Subtract ad spend after contribution margin to see profit after ads.

Keep reading

Contribution marginRevenue minus variable costs, the margin that sets break-even ROAS.
Gross marginThe margin after product cost only, before the other variable costs.
Cost of goods soldThe first variable cost on every order.
Break-even ROAS calculatorFind the return each product needs to break even.
Markup and margin calculatorWork out margin, markup and selling price from cost.
POAS vs ROASWhy profit on ad spend counts profit after variable costs.