A company's cost structure defines how its costs are distributed between fixed expenses (rent, salaries) and variable costs (hosting, payment processing fees). Understanding cost structure is essential for pricing decisions, margin analysis, and scaling strategy.

Example: A SaaS company has a cost structure where 60% of costs are fixed (engineering and sales salaries) and 40% are variable (cloud infrastructure and payment processing). As revenue scales, the variable costs grow proportionally while fixed costs remain relatively stable, expanding gross margins.