Financial Glossary
Cost Structure
Cost structure is the composition of all costs a business incurs to operate, typically broken into fixed costs that stay constant regardless of activity and variable costs that rise and fall with output or sales. It determines how profit responds to changes in volume and where a business reaches break-even. Analyzing cost structure reveals how scalable a business is and how exposed it is to swings in demand.
Problem & Application
Seasonal operators like campgrounds and STRs feel cost structure acutely, since high fixed costs such as mortgage, insurance, and base staffing must be covered even when occupancy is low. A business heavy on fixed costs has more risk in slow periods but more profit upside when volume is strong, while a variable-heavy structure flexes more safely with demand. Knowing the split guides pricing, staffing, and decisions about whether to take on new fixed commitments.
In Short
Understanding the fixed-versus-variable mix lets owners predict how profit moves with sales and manage risk through their seasons.