When it comes to costs in business, they are truly very important if you want your business to grow steadily. Whether it's fixed costs or variable costs, today I want to focus a bit on variable costs because this is something most entrepreneurs tend to overlook.

What exactly are variable costs? Simply put, they are costs that change according to the number of products we produce or sell. When we produce more, these costs increase; when we produce less, they decrease. Unlike fixed costs, which must be paid regardless of whether we produce or not.

Let me give a clear example. Imagine a clothing manufacturing factory. If we need to buy fabric, colored threads, buttons, etc., all of these are variable costs. If we produce 100 shirts, we need to buy 100 pieces of fabric. But if we produce 1,000 shirts, we need to buy 1,000 pieces. It seems simple, but it actually has a big impact on pricing decisions.

Not just raw materials—direct labor costs (wages for workers directly involved in production) are also variable costs. If we want to produce more, we might need to hire more people or pay overtime. Electricity and water costs in the production process also increase. Packaging costs, shipping and delivery fees, even commissions for sales staff—all of these fluctuate with the volume of production and sales.

What I want everyone to understand is that variable costs are crucial in setting the selling price. If we don’t know our variable costs per unit, we can’t price correctly. We might sell too cheaply and incur losses, or sell too expensively and customers won’t buy.

Another important point is controlling variable costs. If we can reduce the variable cost per unit, our profit will increase. This is where supply chain management, negotiating prices with suppliers, or investing in machinery to improve production efficiency come into play.

However, variable costs are like a double-edged sword. During a booming business period, we sell a lot, and variable costs increase accordingly, but we still make a profit. But if the market downturns and sales drop, variable costs decrease as well, which helps us avoid excessive losses. This is the flexibility that variable costs provide.

In summary, understanding variable costs helps us plan production, make pricing decisions, and manage resources efficiently. No matter what type of business we have, variable costs are everywhere, and managing them well is key to increasing profits.