Contribution margin
Intermediate FP&AContribution margin is one of the most important metrics in FP&A. It tells you how much revenue is left after covering variable costs to pay for fixed costs and generate profit.
Understanding which products have the highest contribution margins helps businesses make pricing decisions, focus sales efforts, and evaluate product profitability.
Key concepts:
- Contribution Margin = Revenue - Variable Costs
- Contribution Margin % (CM %) = Contribution Margin ÷ Revenue
A higher CM % means more of each dollar of revenue contributes to covering fixed costs and profit.
Your task:
You have a product profitability report with six products. For each product:
- In column D, calculate the Contribution Margin by subtracting variable costs from revenue
- In column E, calculate the CM % by dividing the contribution margin by revenue
Complete all rows (D2:E7) with the appropriate formulas.
Need some help?
Hint 1
Contribution Margin is simply Revenue minus Variable Costs. Look at columns B and C.
Hint 2
For CM %, you need to divide the contribution margin you calculated by the revenue. Use the cell reference to the contribution margin you just calculated.
Hint 3
For row 2: Contribution Margin is =B2-C2, and CM % is =D2/B2. Apply the same pattern to all rows.
Contribution margin
Intermediate FP&AContribution margin is one of the most important metrics in FP&A. It tells you how much revenue is left after covering variable costs to pay for fixed costs and generate profit.
Understanding which products have the highest contribution margins helps businesses make pricing decisions, focus sales efforts, and evaluate product profitability.
Key concepts:
- Contribution Margin = Revenue - Variable Costs
- Contribution Margin % (CM %) = Contribution Margin ÷ Revenue
A higher CM % means more of each dollar of revenue contributes to covering fixed costs and profit.
Your task:
You have a product profitability report with six products. For each product:
- In column D, calculate the Contribution Margin by subtracting variable costs from revenue
- In column E, calculate the CM % by dividing the contribution margin by revenue
Complete all rows (D2:E7) with the appropriate formulas.
Need some help?
Hint 1
Contribution Margin is simply Revenue minus Variable Costs. Look at columns B and C.
Hint 2
For CM %, you need to divide the contribution margin you calculated by the revenue. Use the cell reference to the contribution margin you just calculated.
Hint 3
For row 2: Contribution Margin is =B2-C2, and CM % is =D2/B2. Apply the same pattern to all rows.