Recognizing the difference between fixed and variable selling costs can help firms account for the relative risks associated with alternative sales strategies.
The classification of selling costs as fixed or variable will depend on an organization’s structure and on the specific decisions of management.
A number of items, however, typically fall into one category or the other – with the proviso that their status as fixed or variable can be time specific.
Some marketers budget a fixed amount and then face an end-of-period discrepancy or "variance" if sales miss their declared targets.
By contrast, a flexible budget – that is, one that takes account of its genuinely variable components – will reflect actual results, regardless of where sales end up.
If marketers expect revenues to be sensitive to factors outside their control – such as competitive actions or production shortages – they can reduce risk by including more variable and less fixed spending in their budgets.
Selling costs might include incentives to local dealers, which are tied to the achievement of specific sales targets.