Fixed and variable costs are essential terms for any entrepreneur to know. Especially for creatives, understanding your costs is crucial when setting prices. Understanding the distinctions and getting a handle on fixed and variable costs can help you price more confidently, forecast profit more accurately, and make better business decisions. 

What Are Variable Costs? 

Variable costs change depending on how much work you’re doing. The more projects you take on, the more these costs can go up. If you don’t take on work, these expenses may drop to zero. 

Depending on your field, these can vary. Material costs, printing, and travel costs are all things that would be included in variable costs. It’s important to remember that although your variable costs might be low, there are still hidden fixed costs that make your overall costs higher. 

What Are Fixed Costs? 

Fixed costs are expenses that stay the same regardless of how much work you do or how many clients you have. These are costs you must pay to keep your business running, even if you don’t have a single project that month. 

Think tools like Adobe Creative Cloud, website hosting, rent, and business insurance. It’s good to identify these, as these costs will need to be paid regardless of the number of projects you have. 

Why Does It Matter for Creatives? 

Knowing your fixed and variable costs helps you calculate your break-even point, which is the amount you need to earn just to cover your expenses. Beyond that point, your profits kick in. 

Let’s say your monthly fixed costs are 2,000€, and you estimate that each project costs you 300€ in variable expenses. If you charge 1,000€ per project, you’d need to complete at least 3 projects a month just to break even: 

• Fixed costs: 2,000€ 

• Variable cost per project: 300€ 

• Revenue per project: 1,000€ 

• Profit per project after variable costs: 700€ 

• Projects needed to cover fixed costs: 2,000€ ÷ 700€ ≈ 3 projects 

Anything above that becomes profit (minus taxes, of course). 

Key Things to Remember 

Track your costs regularly. Use a spreadsheet or bookkeeping tool to separate fixed and variable expenses.  

Raise prices with confidence. If you know your costs and your value, it’s easier to justify and communicate your rates.  

Don’t forget the “hidden” fixed costs. Think of things like depreciation of gear or professional development subscriptions.