I just really thought about this: why do some businesses make a profit while others still incur losses, even though both sell roughly the same amount of products? The main reason comes down to different cost management, especially distinguishing between fixed costs and variable costs.

If you're an entrepreneur or freelancer, you really need to understand this difference because it affects decisions about product pricing, investments, and even business expansion.

Let's start with fixed costs. These are expenses you have to pay whether the business is running at full capacity or nearly stopped. Office rent, regular employee salaries, insurance, loan interest, depreciation of equipment—all of these must be paid continuously regardless of revenue.

On the other hand, variable costs are another matter. They change according to the volume of production and sales, such as raw materials, direct labor, energy costs, packaging, shipping, and sales commissions. The more you produce, the higher these costs; the less you produce, the lower they are.

Why is this important? Because when you understand which costs are fixed and which are variable, you can plan your finances much better. For example, if direct labor costs are very high, you might decide to invest in machinery to reduce variable costs in the long run, even if it means higher fixed costs.

Knowing the mixed costs—that is, combining both types—helps you see the overall picture of your actual expenses. Then, you can set product prices that sufficiently cover both types of costs and still leave a profit.

Another benefit is that understanding variable costs helps you identify the break-even point—the sales level needed to cover fixed costs. Once you know this, you can set realistic sales targets.

In summary, effective cost management—whether fixed or variable—is the heart of a sustainable business. If you don't closely monitor these costs, it will be difficult to know your true profit or where to make improvements.