contribution margin

Fin
a way of showing how much individual products or services contribute to net profit.
EXAMPLE
Its calculation is straightforward:
Sales price – variable cost = contribution margin
Or, for providers of services:
Total revenue – total variable cost = contribution margin
For example, if the sales price of a good is $500 and variable cost is $350, the contribution margin is $150, or 30% of sales. This means that 30 cents of every sales dollar remain to contribute to fixed costs and to profit, after the costs directly related to the sales are subtracted.
     Contribution margin is especially useful to a company comparing different products or services. For example:
     Obviously, Product C has the highest contribution percentage, even though Product A generates more total profit. The analysis suggests that the company might do well to aim to achieve a sales mix with a higher proportion of Product C. It further suggests that prices for Products A and B may be too low, or that their cost structures need attention. Notably, none of this information appears on a standard income statement.
     Contribution margin can be tracked over a long period of time, using data from several years of income statements. It can also be invaluable in calculating volume discounts for preferred customers, and break-even sales or volume levels.

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Look at other dictionaries:

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  • contribution margin — The difference between variable revenue and variable cost. Bloomberg Financial Dictionary …   Financial and business terms

  • Contribution Margin — ⇡ Deckungsbeitrag …   Lexikon der Economics

  • contribution margin — /ˌkɒntrɪ bju:ʃ(ə)n ˌmɑ:dʒɪn/ noun the difference between the revenue generated by a product and its total variable costs …   Marketing dictionary in english

  • Contribution margin-based pricing — maximizes the profit derived from an individual product, based on the difference between the product s price and variable costs (the product s contribution margin per unit), and on one’s assumptions regarding the relationship between the… …   Wikipedia

  • contribution margin ratio — contribution to sales ratio; = production–volume ratio; = profit–volume ratio The ratio of the contribution per product to the sales value, often expressed as a percentage. It is a way of ranking a range of products in terms of their relative… …   Accounting dictionary

  • Маржинальная прибыль (CONTRIBUTION MARGIN, MARGINAL CONTRIBUTION)  — Разность между доходом от реализации и переменными затратами. Для достижения точки безубыточности маржинальная прибыль должна покрыть постоянные затраты. См. также Доля маржинальной прибыли (Contribution Margin Ratio); Маржинальная прибыль на… …   Словарь терминов по управленческому учету

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