I just realized why many people are confused about costs in business because it's not as simple as they think. We have two very different types of costs, and if you understand them well, financial planning becomes much easier.

Let's start with fixed costs, called Fixed Cost, which are expenses that do not change regardless of whether you sell more or less. For example, office rent, employee salaries, insurance, loan interest. These costs must be paid every month on time, even if the business does nothing.

The important thing is that these fixed costs help us set appropriate product prices because we need to include them with other costs to ensure the selling price covers all costs and still leaves a profit.

Then, variable costs are the opposite. They change according to the production or sales volume. The more you produce, the higher these costs will be. For example, raw materials, direct labor, packaging, transportation, sales commissions.

If you don't produce any products, variable costs are zero. But as you start producing more, they increase accordingly. This is the flexibility of this type of cost.

Understanding this difference makes cost management easier. If fixed costs are high, it may be necessary to invest in machinery to reduce variable costs, which are labor costs. Conversely, if variable costs are the highest, you can reduce them by managing the production volume.

By combining both types, you get a complete view of the business's cost structure. This information helps you make better decisions, whether setting prices, planning production, or making investment choices.

In summary, fixed costs do not change, but variable costs depend on production. Both must be considered to ensure the business can survive and grow in the long term.