Welcome to today’s Tiny MBA topic: variable costs.
Definition: Variable Costs
Variable costs are things that you use up as you go in your business: the more business you do, the more you must spend on them.
Examples: Variable Costs in Kid Businesses
Kid businesses like lemonade stands, bake sales, and lawn mowing all have variable costs.
In a food business like lemonade or baking, the ingredients are your variable costs. The more lemonades you sell, the more lemons and sugar you need to buy. Same with flour, sugar and butter (and chocolate or other tasty add-ons) for baking.
If you’re mowing lawns to make money, the gas for the lawnmower is your variable cost – the more you mow, the more gas you must buy. Of course, if the lawnmower is electric, then the electricity is your variable cost.
Another common variable cost is labor. If you’re doing the work yourself (say dog walking), you probably wouldn’t count your own earnings as a ‘cost.’ But if you’re hiring another kid to help, their hourly labor is a variable cost because the more dogs they walk for your clients, the more you must pay them.
Variable costs can make your business successful – or not. If you’re using really fancy ingredients costing $2 per cookie, for example, but only selling cookies for $1, then your variable costs are killing you! But if you’re hiring neighborhood kids to cat sit for $10/hour, and charging $15/hour for their time, you have a profitable business.
Related reading: Fixed Costs and Backyard Businesses.
Tiny MBA is my occasional series of short stories illustrating business concepts for kids.