High Low Method: A Simple Guide for SA Online Stores
July 20, 2026 · 14 min read · Hannah Furno
You finally have a month where orders feel steady. Your phone keeps buzzing, parcels are going out, and your online store looks busy. Then you open your banking app and ask the awkward question: if sales were up, why doesn't profit feel as good as it should?
That's a common place for new online sellers to land. You can sell handmade jewellery, candles, beaded bags, skincare, or printed tees, and still feel unsure about what each sale is really costing you. In South Africa, that matters more every year because online retail surged by approximately 35% in 2024, reached an estimated R96 billion in total sales, and accounted for roughly 8% of all retail trade, with projections that e-commerce will reach close to 10% of national retail turnover by the end of 2025 and surpass R150 billion by 2026, according to Mastercard's South African online retail outlook.
A lot of new store owners only look at sales. The stronger habit is to look at how costs move when sales move. If you've been trying to understand expenses better, this simple guide to cash flow management for small businesses can help alongside the method in this article.
Table of Contents
- Why Your Busiest Month Is Not Always Your Best
- What Is the High Low Method
- How to Calculate Costs With the High Low Method
- A Worked Example for a Shopstar Store
- Advantages and Limitations You Should Know
- Putting It All Together for Your SA Business
Why Your Busiest Month Is Not Always Your Best
A seller can have a record month and still feel disappointed at the end of it. That happens when more orders also bring more packaging, more courier fees, more transaction charges, more rush buying of materials, and more small costs that seem harmless on their own.
Take a local maker selling custom earrings online. December looks amazing because orders jump. But that same month might include higher delivery costs, extra gift packaging, and more replacement stock bought in a hurry. Sales go up, yet the owner still can't clearly tell which costs stayed the same and which rose with each order.
Some months are busy but messy. A busy month only helps if you understand what it cost you to create that busyness.
That's where the High Low Method helps. It gives you a basic way to estimate how your costs behave by using your highest activity period and your lowest activity period. For a beginner, that can be enough to turn confusing expense lists into something more useful.
Why beginners get stuck
New store owners usually track revenue first. That makes sense. Revenue is easy to spot. Costs are harder because they come from different places:
- Store running costs that show up every month
- Order-related costs that rise when you sell more
- Mixed costs that include a bit of both
If you don't separate those properly, pricing gets shaky. You might undercharge during quiet months or panic during busy months because cash feels tighter than expected.
What this method gives you
The High Low Method won't give you a perfect financial model. It does give you a starting point.
You can use it to estimate:
- What part of a cost stays fixed
- What part changes with each sale or unit
- How your next busy month might affect expenses
For someone starting an online store in South Africa, that's often the first useful step toward better pricing and calmer planning.
What Is the High Low Method
Before the maths, it helps to sort your costs into plain language.
If you ran a small market stall on a Saturday, you'd already understand this. Some costs would exist even if only a few people bought from you. Others would rise every time you sold another item. Online stores work the same way.
The three cost types
Fixed costs stay the same regardless of how much you sell. Think of software subscriptions or monthly tools you pay for whether you get one order or many.
Variable costs move with sales volume. If you sell handmade bracelets, your beads, clasps, packaging, and courier charges often rise as orders rise.
Mixed costs combine both. A service might charge a base monthly fee plus an extra amount depending on activity. That means part of the cost is stable, and part changes.
Practical rule: If a cost doesn't move at all when orders change, it's likely fixed. If it rises every time you make or ship more, it's likely variable. If it does both, it's mixed.
The basic idea behind the method
The High Low Method is a cost accounting technique that relies exclusively on two extreme data points, the highest and lowest activity levels, to estimate variable and fixed costs, as explained by Corporate Finance Institute's overview of the high-low method.
The formula for the variable cost per unit is:
(Highest Activity Cost – Lowest Activity Cost) ÷ (Highest Activity Units – Lowest Activity Units)
Once you have that variable cost, you use one of the two data points to work backwards and estimate the fixed cost.
Why this matters for an online store
If you sell handmade goods, your cost list can get messy fast. Materials, courier fees, packaging, payment costs, labels, and admin tools don't all behave in the same way. The High Low Method gives you a rough split so you can make better pricing decisions.
If you want a broader beginner-friendly view of the field behind this topic, this resource on cost accounting for UK professionals gives useful background on how businesses use cost information to make decisions.
Where people get confused
Many beginners think the “high” and “low” refer to the highest and lowest costs. They don't. They refer to the highest and lowest activity levels, such as units sold or orders shipped.
That difference matters. A month with unusually high costs is not automatically your “high” point unless it also had the highest activity.
How to Calculate Costs With the High Low Method
You don't need accounting software to try this. You need your sales activity data and your total mixed cost for the same periods.
A lot of South African students first learn this method as a simple cost-volume calculation where variable cost per unit, or b, is computed as (y₂ - y₁) / (x₂ - x₁), and fixed cost, or a, is then found by placing the result into y = a + bx, as shown in these South African management accounting notes.
Step 1 Find your high and low activity points
Look through your monthly records and find:
-
The highest activity month
This is the month with the most units sold or orders completed. -
The lowest activity month
This is the month with the fewest units sold or orders completed. -
The total mixed cost for each of those months
Use the same cost category in both months. Don't compare shipping in one month with packaging plus ads in another.
If you're not sure which expenses to include, this practical guide on the cost of running an e-commerce store in South Africa can help you build a cleaner list.
Step 2 Calculate the variable cost per unit
Use this formula:
Variable cost per unit = (Total cost at high point - Total cost at low point) ÷ (Activity level at high point - Activity level at low point)
A curriculum example uses 4,000 units at ZAR 275,000 as the high point and 1,000 units at ZAR 100,000 as the low point. That gives a variable cost of ZAR 55 per unit.
Here's the calculation:
- Cost difference: ZAR 275,000 minus ZAR 100,000
- Activity difference: 4,000 units minus 1,000 units
- Variable cost per unit: ZAR 55
Step 3 Calculate the fixed cost
Now use the formula:
Fixed cost = Total cost - (Variable cost per unit × Activity level)
Using the high point:
- Variable portion = ZAR 55 × 4,000
- Fixed cost = ZAR 275,000 - variable portion
- Estimated fixed cost = ZAR 55,000
That gives you a simple cost formula:
Total cost = ZAR 55,000 + ZAR 55 × units
If your numbers feel odd, check whether you used the highest and lowest activity months, not the most expensive and cheapest months.
The video below gives another simple explanation if you prefer to learn visually.
Why this helps with pricing
Once you estimate your variable cost per unit, you can compare it with your selling price. That makes it easier to think about margin, not just turnover. If you want extra help with that side of the puzzle, this guide to eCommerce gross margin is a useful next read.
A Worked Example for a Shopstar Store
Bongi runs a small online shop called Bongi's Beaded Bags. She sells handmade bags to customers around South Africa. Some months are calm. Other months get busy because of gifting seasons, markets, or social media interest.
She wants to understand one mixed cost category in her business. It includes packaging, delivery-related handling, and a few order-linked overheads that rise as sales increase. She doesn't want a perfect accountant's model yet. She just wants a sensible estimate she can use for pricing and planning.
Bongi's monthly data
Below is a simple table showing her activity and total mixed costs.
| Month | Units Sold (Activity) | Total Mixed Costs (ZAR) |
|---|---|---|
| January | 1,000 | 100,000 |
| March | 2,100 | 160,500 |
| August | 3,000 | 220,000 |
| December | 4,000 | 275,000 |
High-Low Method Calculation for a Local Online Store
Her highest activity month is December at 4,000 units. Her lowest activity month is January at 1,000 units.
Doing the maths
First, she calculates the variable cost per unit:
(275,000 - 100,000) ÷ (4,000 - 1,000) = 55
So her estimated variable cost per unit is ZAR 55.
Then she calculates fixed cost using the high point:
275,000 - (55 × 4,000) = 55,000
Her estimated fixed cost is ZAR 55,000.
Bongi now has a simple planning formula. Estimated total cost = 55,000 + 55 × units sold.
How Bongi can use this
This doesn't mean every single bag costs exactly the same to handle. It gives her a useful estimate.
She can now ask smarter questions:
- If I sell more next month, how much of my cost rise is normal?
- If I lower my price, will I still cover the ZAR 55 variable amount plus contribute to fixed costs?
- If a festive season is coming, how much cash should I keep ready?
That's also where scenario planning becomes helpful. A simple what-if analysis for business decisions can help a seller test different sales volumes before they change prices or buy more stock.
For a beginner, that's the primary benefit of the High Low Method. It turns a pile of expenses into a rough model you can apply.
Advantages and Limitations You Should Know
The High Low Method is useful because it's simple. It's also risky if you trust it too much.
Historically, the method was developed to split mixed costs into fixed and variable components, but it is rarely applied in professional settings because it can cause distortion of cost data and can't handle multiple cost drivers beyond activity level, as discussed in Shopify's explanation of the high-low method.
Good for
If you're just starting out, this method can help in a few real ways:
- Quick first estimates when you don't have advanced spreadsheets
- Simple pricing checks for handmade or made-to-order products
- Basic planning before a sales season or product launch
- Learning cost behaviour so your numbers stop feeling random
It's especially useful when your records are still basic and you need a method you can do by hand.
Not so good for
This method can mislead you when your business has unusual months.
A high-activity month might include a once-off courier problem, supplier increase, or rush material order. A low-activity month might include a discount period, stock issue, or paused marketing. Because the method only uses two points, one strange month can pull the whole estimate in the wrong direction.
That's a big issue for small online businesses in South Africa. Shipping changes, material prices move, and sales don't always follow a neat pattern.
A simple method is helpful. A simple method is not the same as an accurate method.
A better next step later on
As your store grows, you may want a stronger method that uses more of your data instead of only two months. That's where regression analysis comes in. You don't need to master it today. Just know that it's the next level up when your business gets more complex.
Use the High Low Method as a starting tool, not as the final word.
Putting It All Together for Your SA Business
The High Low Method helps you answer one practical question. When sales change, how do your costs change too?
For a South African online seller, that matters across your whole sales setup. Over 77% of South African consumers shop online using mobile devices, while social commerce is projected to drive 30% of online sales through platforms like Instagram, WhatsApp, and TikTok, according to Netcash's South African e-commerce payment statistics. That means your store may get demand from your website, phone traffic, and social channels at the same time. Costs can rise unnoticed in the background if you're not watching them.
A simple checklist
Use the High Low Method when you want a fast estimate and you have clean sales records.
Check these places first:
- Units sold: Your store dashboard, order history, or sales export
- Total mixed costs: Bank statements, bookkeeping records, courier summaries, packaging purchases
- Matching dates: Make sure activity and costs come from the same months
- Odd months: Remove months that were clearly unusual if they would distort the picture
When to use it and when to pause
Use it if you're a beginner, your business is fairly simple, and you want a rough planning tool.
Pause and get more detailed help if your costs swing for reasons beyond sales volume. That often happens when material prices jump, product sizes vary a lot, or different sales channels create different fulfilment costs. If social selling is becoming important in your business, this resource on understanding social media value can help you think more clearly about what those channels are contributing.
The best part is that you don't need perfect numbers to start learning. You just need honest records and a willingness to look at them properly.
If you're ready to move from spreadsheets and guesswork to a simpler way of selling online, Shopstar gives South African makers and creators one place to manage products, orders, payments, shipping, and sales. It's built locally for small businesses that want to launch and grow without needing a developer.
