7. Fixed vs Variable Logistics Costs
In logistics and supply chain management, cost control is one of the most important levers for increasing profit margins and ensuring business sustainability. To manage costs effectively, you must understand the difference between fixed logistics costs and variable logistics costs — because each behaves differently and affects your business in distinct ways.
Let’s break it down in depth.
What Are Logistics Costs?
Logistics costs refer to all the expenses associated with the movement, storage, handling, and delivery of goods. These costs occur throughout your supply chain — from sourcing raw materials to delivering finished goods to customers.
They include:
These costs are typically divided into fixed and variable categories.
What Are Fixed Logistics Costs?
Fixed logistics costs are expenses that do not change significantly with the volume of goods moved — at least in the short term. These are the costs you pay regardless of how many products you ship or store.
Examples:
-
Warehouse lease or rent: You pay the same monthly rent whether you store 100 or 10,000 units.
-
Salaried staff: A full-time warehouse manager earns the same regardless of daily shipment volumes.
-
Depreciation of logistics equipment: Forklifts, shelves, conveyor systems.
-
Technology subscriptions: WMS (Warehouse Management System), TMS (Transportation Management System).
-
Security and insurance: Typically constant over time.
Key Characteristics:
Why Fixed Costs Matter:
Fixed costs create operational leverage. If you increase volume without increasing fixed costs, your unit cost drops, improving profit margins. However, if volume falls, your per-unit cost rises — which can hurt profitability fast.
What Are Variable Logistics Costs?
Variable logistics costs change in direct proportion to the volume of goods being moved, stored, or sold. The more you move, the more you pay.
Examples:
-
Shipping fees (per package, per truckload, per kilometer)
-
Packaging materials (boxes, labels, inserts)
-
Pick-and-pack labor (paid per order or per unit handled)
-
Fuel and tolls
-
Freight charges (air, sea, road)
-
Handling fees from 3PLs (charged per item or per order)
Key Characteristics:
Why Variable Costs Matter:
Variable costs directly impact your cost of goods sold (COGS) and unit economics. Every extra order increases these costs, so efficiency and negotiation (e.g., better shipping rates, optimized routes) can make a huge difference to your bottom line.
Comparison Table: Fixed vs Variable Logistics Costs
| Feature | Fixed Costs | Variable Costs |
|---|
| Definition | Costs that stay constant regardless of volume | Costs that fluctuate based on activity level |
| Examples | Warehouse rent, salaried staff, software subscriptions | Shipping, packaging, per-order labor |
| Control in Short-Term | Low | Moderate to High |
| Impact on Unit Cost | Reduces as volume increases | Stays consistent per unit |
| Budgeting | Easy to plan | Harder to predict during demand swings |
| Scalability Risk | High if volumes drop | Low |
Why You Need to Separate Them
Understanding which costs are fixed and which are variable helps you:
-
Price products more accurately
-
Make better scale-up decisions
-
Forecast profit margins under different demand scenarios
-
Optimize your logistics strategy (e.g., switching from in-house to 3PL to reduce fixed costs)
A Practical Example
Let’s say you run an e-commerce brand selling skincare products:
-
You rent a small warehouse for €2,000/month → fixed
-
You use a 3PL that charges €3/order fulfilled → variable
-
You buy boxes, thank-you cards, and tape → variable
-
You hire a part-time warehouse assistant at a fixed €800/month → fixed
-
You pay €5 per delivery on average → variable
Now, if you double your sales:
So:
→ Your total costs go up
→ But your fixed costs per unit go down (because they're spread over more orders)
→ If your prices stay the same, your profit margin increases
Hybrid Costs
Some costs are semi-variable — they include both fixed and variable components.
For example:
-
Labor: You may have a base team (fixed), but also bring in temps during peak seasons (variable).
-
Utility bills: Base charge (fixed), usage-based charges (variable).
These require careful modeling and break-even analysis.
In Summary
To run a successful logistics operation, you must:
-
Track both categories separately
-
Reduce fixed costs when underutilized
-
Optimize variable costs as you scale
-
Design a logistics model that balances flexibility with efficiency
Knowing your cost structure isn't just accounting — it’s strategy. It’s the difference between scaling profitably and growing into a loss.
