Semi-Variable Cost

Semi-variable: elements of both fixed and variable costs.

Think about the pay for a salesperson, with a fixed salary of $50,000 a year to your sales associate. You also give them a bonus of $2 per 10 boxes sold. So each additional 10-box unit sold carries a $2 variable cost related to commission.

But the salary is a fixed cost. It gets relatively less expensive per unit with each additional sale. If the salesperson sells 10 boxes in a year, the sales cost for that unit is $50,002. The full salary, plus the $2 commission.

Really expensive. You just paid a salesperson $5,000.20 for each box of toothpicks they sold. If they sell 10,000 boxes, well, now the cost overall is $52,000 for the year...$50,000 salary and the $2,000 total commission for the 1,000 units.

You’re paying more on an absolute basis. But the per-box amount is much better. Now you paid just $5.20 per box. Say that compensation increases to 100,000 boxes in a year. Total cost goes up to $70,000. Again, more on an absolute basis. $50,000 in salary and $20,000 in commission. But now the per-box cost is just $0.70. Semi-variable.