Variable costs are the flexible expenses you pay to make a transaction happen for your business. They might not be the biggest numbers on your profit and loss statement, but they're sensitive to growth. They can erode margins in subtle ways, even if you have strong sales, disciplined marketing, and a growing customer base. An understanding of variable costs is needed to make sense of price thresholds, contribution margin, break-even points, and what scale looks like.

Below, we'll break down what variable costs are, how to calculate them cleanly, and how to manage them for greater efficiency and control of your business.

What's in this article?

• What are variable costs in e-commerce?
  
• What are variable costs in online businesses?
  
• How does managing variable costs impact e-commerce profitability?
  
• How do you calculate variable costs in e-commerce operations?
  
• How can you manage variable costs for greater efficiency and margin control?
  
• How Stripe Billing can help
  

What are variable costs in e-commerce?

Variable costs grow with each sale you make or item you produce. The more orders you fulfil, the more of these costs you incur. They're the opposite of fixed costs, such as a warehouse lease or flat-rate software subscriptions.

In an e-commerce context, variable costs change in proportion to your sales volume. They show up every time a customer clicks "buy." That makes them an important tool in your unit economics: your profit per order depends on how you keep these costs in check.

What are variable costs in online businesses?

The shape of your variable costs depends on your business model, but the pattern is the same across models: these are the costs to make a sale. Here's where they typically come from.

Cost of goods sold (COGS)

The cost of goods sold is the baseline. For resellers, COGS is the wholesale price of inventory. For makers or manufacturers, COGS includes the materials, production labour, and unit level manufacturing costs. It's often the largest variable cost by far, and it generally scales directly with order volume.

Shipping and fulfilment

Every package you send carries a shipping fee. That fee includes postage, fuel surcharges, and zone-based pricing from carriers. If you use a third-party logistics provider, you might also pay per-order fees to pick, pack, and ship the product. Shipping costs can peak fast with heavier or bulkier items, and offering free or express shipping means you absorb even more of those costs.

Packaging materials

Every shipment needs materials such as boxes, envelopes, inserts, tape, labels and padding. These costs might be overlooked because they can seem small in isolation. At scale, they're not. High-quality packaging adds weight, dimension and cost; light, efficient packaging can reduce both fulfilment time and carrier fees.

Payment processing fees

There's a cost to moving money, too. Payment providers usually charge a percentage of each sale plus a fixed fee per transaction, depending on the payment method and location of both the customer and the business.

Marketplace and platform commissions

If you sell through a marketplace or platform, those spaces might take a cut of each transaction – either a flat rate, a percentage, or both. This cost will vary.

Sales-related labour

Hourly staff in fulfilment or customer support scale with order volume. If your team packs boxes, handles live chats, or manages returns, the time and cost tied to that labour rise as your order count does. This expense isn't always classified as variable, but in e-commerce, a good share of operations labour follows sales closely enough to count it.

Performance marketing and referral fees

Spend on paid acquisition might grow with sales (e.g. cost-per-click ad budgets, affiliate commissions that pay out per order). These fees might not be costs of fulfilment, but they're tied to the cost of generating each transaction and should be tracked alongside other variable inputs when you calculate unit margins.

How does managing variable costs impact e-commerce profitability?

In e-commerce, profit doesn't necessarily come from volume. It comes from what's left after variable costs are paid. Every order contributes a margin that covers your fixed expenses and funds future growth. To ensure profitability, you need to monitor your business's variable costs and margins – and how they differ by product or channel.

Monitoring costs

Margins can shrink invisibly when costs are miscounted. For example, you might include COGS but exclude the processing fee, packaging costs, or zone-based shipping surcharges. Those can be the difference between determining a healthy business and one that's just breaking even. The first step to protecting profitability is knowing the true cost of fulfilment.

Tracking margins

Once you have an accurate picture of your variable costs, you can see exactly how much margin each product contributes and how many sales it takes to cover fixed costs. That's your break-even point. A product with a $20 contribution margin achieves sustainability far sooner than a product with a $5 margin, even at the same revenue level. Accurate cost data can help keep your forecasts accurate and your growth plans grounded.

Comparing product and channel costs

Cost visibility should guide your strategy. Two products with the same price can have vastly different unit economics based on packaging, fulfilment complexity, or return rates. Channel choices matter, too. If you sell through your own store rather than a marketplace, that can change fees and margin structure completely. When you can see the differences, you can price, promote and scale with confidence.

How do you calculate variable costs in e-commerce operations?

Margin clarity starts with knowing what it costs to fulfil a single order. Here's how to determine that:

• Start with the cost events triggered by a sale: Record the variable costs that apply to your business, including COGS, fulfilment and shipping costs, packaging, payment processing fees, and conversion-tied marketing spend.

• Calculate your per-order cost baseline: Add up all the variable inputs for a typical order. This calculation can be made per product or by finding an average across your catalogue. If you need to fulfil 1,000 orders and the variable costs on average are $28 per order, that's $28,000. The same logic applies month to month or campaign to campaign.

• Handle semi-variable costs carefully: Some costs, such as hourly warehouse labour and support staffing, grow with volume but not in a straight line. Allocate the variable portion only.

How can you manage variable costs for greater efficiency and margin control?

You probably can't eliminate variable costs, but you can manage them. If you lower your per-order spend by a few dollars, across thousands of orders, you can expand your margins without having to raise prices.

Here's what business operators can do when they want to improve variable cost efficiency at scale.

Renegotiate what moves with volume

Suppliers, fulfilment providers, carriers and payment processors often price based on tiers. As you grow, your leverage in negotiation can increase. Use that to renegotiate these fees:

• COGS: Lock in better pricing through larger batch orders or longer-term agreements, or by resourcing materials.

• Shipping: Carriers might provide rate reductions at higher volumes or for using preferred service levels.

• Payment fees: Payment providers usually offer volume-based discounts once your transaction volume exceeds a threshold.

If you continue to pay the same rates that you did at launch, you might miss out on possible savings.

Get leaner in packaging and fulfilment

Small optimisations can go a long way:

• Ensure you use the correct size for packaging to reduce dimensional weight charges.

• Switch to lighter or more compact materials to potentially lower per-shipment cost.

• Batch fulfilments to reduce handling time and labour costs.

• Consolidate workflows in-house or switch to a third-party provider that's already optimal.

Keep labour costs flexible

Staffing often scales with volume, but not always predictably. Invest in automation where possible (e.g. order processing, tracking, inventory sync). Cross-train team members so you can adjust capacity without overhiring. The goal is to support volume swings without overextending your payroll.

Watch for cost creep

Variable costs don't peak all at once. Instead, they accumulate. That extra insert, upgraded box or marketing add-on per order might feel small, but across hundreds or thousands of orders, it adds up. Audit regularly and ensure you don't pay for experiences that customers won't notice or value.

How Stripe Billing can help

Stripe Billing lets you bill and manage pricing however you want – from simple recurring billing to usage-based billing and sales-negotiated contracts. Start accepting recurring payments globally in minutes – no code required – or build a custom integration using the application programming interface (API).

Stripe Billing can help you:

• Offer flexible pricing: Respond to user demand faster with flexible pricing models, including usage-based, tiered, flat-fee plus overage and more. Support for coupons, free trials, prorations and add-ons is built-in.

• Expand globally: Increase conversion by offering customers' preferred payment methods. Stripe supports 125+ local payment methods and 130+ currencies.

• Increase revenue and reduce churn: Improve revenue capture and reduce involuntary churn with Smart Retries and recovery workflow automations. Stripe recovery tools helped users recover over $6.5 billion in revenue in 2024.

• Boost efficiency: Use Stripe's modular tax, revenue reporting and data tools to consolidate multiple revenue systems into one. Easily integrate with third-party software.

Learn more about Stripe Billing or get started today.