Fixed cost versus variable cost is the difference in categorizing business costs as either static or fluctuating when there is a change in the activity and sales volume. Fixed cost includes expenses that remain constant for a period of time irrespective of the level of outputs, like rent, salaries, and loan payments, while variable costs are expenses that change directly and proportionally to the changes in business activity level or volume, like direct labor, taxes, and operational expenses. To achieve a strategic advantage, can you transform fixed cost into variable ones? Like for example instead of hiring employees, can you work with a network of freelancers?

When and how to apply From Fixed to Variable Costs:

Converting fixed costs to variable costs is a significant method for reducing cash requirements. It could also determine the success or failure of young enterprises. Every fixed cost should be evaluated for potential variable cost conversion.

The following is a example of costs that can be converted from fixed to variable:

Instead of hiring full-time salespeople and being saddled with weekly or monthly salaries, use commission-based independent sales representatives. You incur none of their costs. Representatives are not responsible for benefits, which can account for up to 30 percent of a full-time employee's salary. Ineffective sales representatives are also easier and less expensive to replace than full-time salespeople. The most effective sales representatives have strong relationships with customers in their territory, allowing for quick access and orders.

Well-known companies that use this pattern are Coinbase and Onbelle.