Contribution Margin Vs. Gross Profit |
Contribution Margin Vs. Gross Profit
by Nola Moore
Company gross profit is essential to achieving bottom line profit. Jupiterimages/Comstock/Getty Images
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Small-business owners live and die by their margins. This concept can become complicated and confusing when translated into actual numbers -- especially when it comes to profitability ratios and measurements, which can build on each other or be closely related. Contribution margin and gross profit are two such measurements with differences and similarities.
Contribution Margin Contribution margin is a comparison of variable costs to sales. You can calculate contribution margin in dollars per unit by subtracting your variable costs from your revenue per item or period of service. The contribution margin is most useful when production costs change with volume or scale, such as when you get a discount on the wholesale price of widgets if you buy at least 100 at a time or if making more widgets requires hiring more workers. This variability means that the contribution margin is often predictive in nature: Business owners use it to determine their break-even points or to determine what funding or labor they need for business expansion. Gross Profit The gross profit calculation is nearly identical to the contribution margin, with one primary difference: It includes both variable and fixed costs. So the gross margin accounts for the base production-specific cost of any product, as well as the costs that change based on the volume of goods sold or produced. While the contribution margin is useful for multiple-scenario analysis, gross profit is usually used for historical calculations or projections with a specific sales volume.
About the Author Nola Moore is a writer and editor based in Los Angeles, Calif. She has more than 20 years of experience working in and writing about finance and small business. She has a Bachelor of Science in retail merchandising. Her clients include The Motley Fool, Proctor and Gamble and NYSE Euronext.
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Jupiterimages/Comstock/Getty Images《Improving Profit: Using Contribution Metrics to Boost the Bottom Line》 Keith N. Cleland【摘要 书评 试读】图书
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出版社: A 1st ed. (日)
平装: 240页
语种： 英语
15.2 x 1.4 x 22.9 cm
作者简介
The author of two books and a dozen articles, Keith N. Cleland is currently professor and head of the Financial Management Department, IBR School of Executive Management, at Steinbeis University in Berlin. Dr. Cleland's background includes seagoing as a cadet and navigating officer, consulting with an international consulting group, full professor and head of departments of accounting and business studies at three universities, chairman of private and public companies, member of the United Nations Small Business Committee on South East Asia, and co-founder of the International Christian Chambers of Commerce. For the past twenty-five years, he has actively consulted with the accounting profession and their business clients, helping identify and provide solutions for underlying business problems, which led to the crystallization of the concept underlying contribution-based activity, adopted in varying degree by numerous businesses, small and large, with turnovers ranging from $250,000 to $12,000,000,000+.
目录
Background to Contribution-Based Activity (CBA)
Kitchen Utensil Manufacturer Taken to the Cleaners
Printing Business Multiplies Net Profit by 500%
Furniture Manufacturer Climbs Out of the Red
Contractor Overcomes Competition to Make a Profit
Horticultural Equipment Proprietor’s Moment of Truth
Wholesaler Nets $2.5M in 10+ Months
Jeweler’s Changed Focus Turns Red into Black
Upmarket Café Learns How to Stay on Track
Diesel Repair Shop Rescued from Sand-Up- Hill Country
Garment Maker Multiplies Net Profit by 700%
Switchboard Manufacturer Climbs into the Black
Baker Identifies W here the Rubber Meets the Road
Architectural Practice Eradicates a Malignant Cancer
Accounting Firm Wins by Losing a Third of Its Fees
Legal Firm Transfers Productivity to the Bottom Line
Contractor Increases Strike Rate to 1 in 4
Hot Bread Baker Discovers More to Bread than Flour
Window Manufacturer’s Flawed Foundation
Multi-Home Contractor Discovers a New Way Home
Award-Winning Hairdressing Salon Cuts Its Way Out of Bankruptcy
Multi-Department Store Whitewashes the Past
14 Businesses Explore CBA/TARI
Questions Answered
Fast-Track Problem Resolution Guide
Definition of Terms
The Business Wheel
Epilogue: Why Contribution Metrics?
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Syd Morgan
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Following an extensive career which included hands-on roles in various senior executive, financial and general management it was interesting to read this new book and reflect on how useful it would have been had it been available earlier.I found it to be an absorbing book that offered more than just the usual scenarios of increasing revenue and cutting costs to improve profit.Each chapter quickly introduced an interesting but real situation and compellingly demonstrated and confirmed reality through a simple-to-understand process the author calls Contribution-Based Activity. It is well written and easy to understand.It not only offered an expedient honest way to identify stark reality but a genuine short cut to improving profits and a time proven way to manage it forward.Syd Morgan FCPA, FGIA.
Very Useful
Greg Sheridan
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I am an accountant in public practice and have followed Keith Cleland for many years and have found his contribution based method for measuring and targeting profit to be the most useful and practical tool in advising clients.I use it for my own accounting business and it can be applied to any type of business. The business owner can understand it and it takes minimal time to report each week.His book is the most useful business consulting/coaching book I've read. Most books tell you why you need to measure performance but don't get to the detail of how to actually measure performance, Professor Cleland's does.
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