What is Contribution Margin?
A definition of Contribution Margin
“Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted, used to cover fixed costs and generate profit.”
Business Glossary > What is Contribution Margin?
Examples of Contribution Margin in a Sentence:
Understanding contribution margin helps in pricing strategies.
A company’s contribution margin can indicate how changes in sales affect profit.
Analyzing the contribution margin is essential for cost control.
Why is Contribution Margin Important in Business?
Knowing the contribution margin is crucial for businesses to determine how different products contribute to overall profitability. Ignoring this metric can result in pricing decisions that do not account for cost coverage and profit generation.
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Associated Terms
Here are some associated business terms and synonyms for “Contribution Margin”:
- Gross Margin
- Profit Contribution
- Contribution to Fixed Costs
Apple Inc. Contribution Margin
Apple Inc. uses contribution margin analysis to set prices and assess profitability across its products. High-margin items like the iPhone contribute substantially to covering fixed R&D and marketing costs, thereby maximizing profit margins.
Final Notes on Contribution Margin
Understanding contribution margin helps businesses make smart pricing and production decisions. Companies should analyze variable costs and pricing strategies to optimize margins and ensure long-term profitability.
This has been a definition of Contribution Margin meaning.
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