Other Variable Overheads are costs that increase with sales but are not included in cost of goods sold (COGS), such as percentage-of-revenue referral fees and the cost of managing a customer care team.
Like any variable cost, other variable overheads change with the volume of business rather than staying fixed, but they sit below gross profit on the 📝Income Statement instead of inside COGS. Referral or affiliate fees paid as a percentage of revenue rise in direct proportion to sales. The cost of a customer care team grows with the customer base but not perfectly linearly, stepping up in increments as volume grows, which makes it closer to a semi-variable cost.
The distinction matters for 📝Unit Economics. Gross margin alone ignores these costs, so a revenue stream can look profitable at the gross margin line and still lose money once other variable overheads are counted; subtracting them, along with marketing spend, moves the analysis from gross margin to contribution margin. John's definition of a 📝Profitable Revenue Stream carries the explicit warning to beware of other variable overheads when judging whether a customer's gross profit covers the cost of acquiring them.