A variable is an event, idea, value or some other object or category that a researcher or business can measure. Variables can be dependent or independent. Dependent variables vary by the factors that influence them, but independent variables stand on their own -- changes in other variables have no effect on them. An independent variable in one context may be a dependent variable in another. An independent variable in business may affect sales, expenses and overall profitability.
Independent variables that affect sales include customer demographics, store location and weather. Customer demographics include age, occupation, family status, income level and gender. These factors affect what a customer needs, which affects sales and ultimately profits. A store located in a densely populated metropolitan area may have higher sales than a store in a sparsely populated rural area. Similarly, customers may go shopping when the weather is pleasant, but few would venture outside in stormy or snowy weather. Some variables have a circular relationship with sales. For example, sales depend on advertising, but the level of advertising expenses also depends on sales.
The prices of raw materials, labor wage rates and facility rental rates are independent expense variables. The prices of raw materials, such as food commodities, metals and minerals, do not change, regardless of how much a small business spends on them. Labor wage rates and facility rental rates are other examples of independent expense variables. They affect the cost structure of a small business, but the owner cannot change market wage rates or rental rates by himself.
Economic variables affect business profitability. The income of individual customers and profits of business customers are independent economic variables that affect overall business performance. During a recession, customers earn and spend less, which leads to declining business sales. Conversely, during a period of economic growth, customers earn and spend more, which increases business sales and profits. The interest rate on a bank loan or line of credit is an independent variable because it affects expenses and profits. However, the borrowing needs of a small business do not change interest rates.
Considerations: Dependent Variables
In the business context, profit is a dependent variable because it depends on the economy, sales and expenses. Product quality depends on the manufacturing and design processes. The number of employees laid off during a recession depends partly on declining business revenues. Government tax revenue depends on customer income, business profits, capital gains and other variables.
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