Welcome to another short and snackable episode, where I’m simplifying the often-confusing world of fixed and variable spending costs. I’ve got some bite-sized number pieces for you, making it not only understandable, but actionable. By the end of this episode, you’ll be a pro at working out which expense type your spending falls into and boosting your financial savvy.
Fixed costs are those steady, predictable expenses that stay consistent month after month. Examples include rent, insurances, leases, and permanent staff wages. Understanding these costs brings budget stability and helps set profitable prices. They are time-based, like monthly or yearly, and more fixed costs mean higher sales needed to cover them.
Variable costs on the other hand, change based on factors like sales volume. Think cost of goods sold, marketing, bank fees and casual wages. They’re performance-driven and can impact profitability significantly. Keeping an eye on them is crucial.
In this episode, I share some practical tips on how you can proactively look for ways to optimise your variable costs, making the most of them or negotiating the costs. I also encourage you to think about ways to streamline how you track your expenses, such as embracing accounting software like Xero.
There are so many different ways and scenarios to mark your expenses, as it is unique for each and every business. What might be a fixed cost for one business could be a variable for another, or maybe not even exist at all. This is why it’s important to be across yours and know how to keep an eye on them.
Digging a little bit deeper into your fixed costs, understanding and calculating them, is not only about day to day operations, it’s a strategic move for future planning and financial security.
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