6 June 2024
 

Variable costs and fixed costs are two key components of a business’ total expenses.

What is the difference between the two? How does it affect your business?

Variable Costs:

• Variable cots are expenses that change in proportion to the level of sales.
• They vary with the volume of goods or services produced.
• Variable costs tend to increase as sales increase and decrease as sales decrease.
• In essence, they fluctuate with the level of activity within the business.

Fixed Costs:

• Fixed costs are expenses that remain constant regardless of the level of sales.
• These costs do not vary with the volume of goods or services produced.
• Fixed costs are incurred even if sales temporarily halt or sales decrease.
• They are often considered the “overhead” expenses necessary to operate the business.

Understanding the difference between variable and fixed costs is crucial for businesses in budgeting and decision-making processes. By analysing these costs, businesses can determine their break-even point and assess the impact of changes in sales level on profitability. Balancing variable and fixed costs effectively is essential for maintaining financial stability and optimising operational efficiency.

The use of outsourcing is an incredibly efficient way to change fixed costs into variable costs and to ese immediate benefits to your bottom line.

Developing a business model with a strong emphasis on variable costs, rather than fixed costs, is pivotal for the success of a real estate enterprise. This strategic approach positions the company to achieve profitability across diverse market conditions, thereby enhancing shareholder demand and elevating share value.

Contact us to see how we can help structure your business on a variable cost basis to give you the clarity and efficiency every business owner desires.

Please contact your Bentleys advisor if you require any additional information.

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