Contribution Margin explained

[@TheFinanceStoryteller]

Enjoyed the video? Then subscribe to the channel now, and watch the related video on break even analysis next: kzbin.info/www/bejne/qGmleq1rfpKUesU

[@monicagiovannaasturias853]

I was having a hard time understanding the contribution margin and this video just saved me! Thank you very much. New subscriber here

[@TheFinanceStoryteller]

I am so happy to hear that, Monica! Welcome! Hope you find many more useful videos on this channel.

[@horodetskaanna5766]

Great explanation, and I love the giraffe !

[@nadiyaahmed9838]

The best one I saw yet ! I've got the concept, thankyou so much !

[@TheFinanceStoryteller]

You're welcome! Very happy to hear that!

[@waleeedz]

The best video explain ever seen regarding contribution margin Keep going

[@TheFinanceStoryteller]

Thank you very much, Waled! Please spread the word!!!

[@thechoniclesofkratos]

Thank you so much from the Caribbean

[@TheFinanceStoryteller]

Happy to help! Greetings back from the Netherlands.

[@ruhanhansuka5149]

Thank You for the simple & easy explanation!

[@TheFinanceStoryteller]

Glad it was helpful, Ruhan!

[@suhas281]

Finally understood after so many videos.Thank you Sir

[@TheFinanceStoryteller]

Happy to help!!! :-)

[@ricky37452]

SUCH. a wonderful explanation!! Thank you so much.

[@TheFinanceStoryteller]

Glad you enjoyed it, Erika! Thank you very much for watching and commenting.

[@bengriffiths5096]

This is a very straightforward explanation! I have subscribed!

[@TheFinanceStoryteller]

Welcome aboard, Ben! :-)

[@motivationstation12345p]

very informative thank you

[@TheFinanceStoryteller]

Happy to help! Thank you for watching and commenting.

[@barackobama3719]

i dont know what i would do without you hahahaha thank god for this channel

[@TheFinanceStoryteller]

Nice to have enthusiastic fans!!! :-)

[@phuonguyen2424]

THANK YOU SIR YOU SAVED MY LIFE

[@TheFinanceStoryteller]

Happy to help!

[@josephkaolinhugo7620]

I think you just implicitly discussed the break-even point. This video is really helpful. Thanks!! FC/P-VC

[@TheFinanceStoryteller]

Yeah, it's hard to discuss one without the other. ;-) I did make a separate video on break even analysis as well though: kzbin.info/www/bejne/qGmleq1rfpKUesU

[@motivatingyou2691]

Amazing and simple explanation thank you

[@TheFinanceStoryteller]

Glad it was helpful!

[@АлександрСударев-д6н]

so touching for an excellent video

[@TheFinanceStoryteller]

Thank you!

[@yinyin7614]

Thank you for the clear and simple explanation. Very helpful.

[@TheFinanceStoryteller]

I am so happy that you are watching so many of my videos, and enjoying them!!!! Thank you.

[@mdanwarhossain2607]

Thanks for video now i can get this.

[@TheFinanceStoryteller]

Wonderful to hear that!!! Thank you for watching and commenting.

[@Full_Poulet]

Excellent, thank you gladly, kind ser!

[@TheFinanceStoryteller]

Happy to help!

[@nandinibansal9115]

Thanku so much for this video it cleaned all my doubts.....thanks a lot😊

[@TheFinanceStoryteller]

Most welcome 😊

[@etavonnibusinessservices8456]

This is very helpful, I think I understand the concept now....thanks

[@TheFinanceStoryteller]

You are welcome! Thank you for watching and commenting.

[@avibhau3852]

You are brilliant. You are a legend👏

[@TheFinanceStoryteller]

Thanks for the compliments! Happy to help. Please subscribe to the channel! I have a related video on the break-even point which might be useful for you as well: kzbin.info/www/bejne/qGmleq1rfpKUesU

[@afifaali1652]

Thank you for your good explanation 🙂

[@TheFinanceStoryteller]

You're welcome 😊

[@lanapearlwilson4828]

Great explanation

[@TheFinanceStoryteller]

Glad it was helpful!

[@pratheebhag3051]

Excellent video!

[@TheFinanceStoryteller]

Thank you very much!!! Please subscribe, there should be many more videos on the channel that can be useful for you.

[@moondust5967]

it is really very much, understandable and clear. You don't speak fast and it is perfect. I liked very much the video and learnt really very smoothly. Thank you Sir. But with money no Sir, sorry - I cant afford

[@TheFinanceStoryteller]

Thank you for the kind words, Sunny!

[@subastuanmakoto1379]

Thank you 😭love uuuuuuu❤️

[@TheFinanceStoryteller]

You're welcome 😊

[@boagokeetshabe1506]

THANK YOU!!!

[@TheFinanceStoryteller]

You're welcome!

[@CazLivingstone]

Brilliant thank you.

[@TheFinanceStoryteller]

Thank you, Caz! Glad you enjoyed it.

[@vanshshah7781]

Thank you.

[@TheFinanceStoryteller]

You're welcome!

[@amoghguragai]

Greatly explained loved it thank you so much😊😊

[@TheFinanceStoryteller]

Glad it was helpful! I have some related videos that could be interesting for you as well, on break even analysis kzbin.info/www/bejne/qGmleq1rfpKUesU and how to read an income statement kzbin.info/www/bejne/fqKQZWeGfcx0n7c Enjoy!

[@1desareflournoy]

THANK YOU

[@TheFinanceStoryteller]

Happy to help!

[@KumR]

Great one. But just one Q- How is CM measured in percentages? Like a company decides on a CM% of X ?

[@TheFinanceStoryteller]

CM% = Contribution Margin $ / Revenue $. A company doesn't really "decide" on a CM%, it is the outcome of the setting of selling price which drives revenue, versus cost per unit. I think you will find the following discussion useful: margin versus markup kzbin.info/www/bejne/qHWQnWqhhJlgfJY

[@areej2240]

Thank you soo muchh

[@TheFinanceStoryteller]

Welcome 😊

[@chaitraarora6876]

Nicely explained 👍😊

[@TheFinanceStoryteller]

Thank you, Chaitra!

[@meiqbalcpm]

Thank You! 👍

[@TheFinanceStoryteller]

You're welcome, Muhammad!

[@darkpurpleshadow3240]

Thank you

[@TheFinanceStoryteller]

You're welcome

[@aishuu_5182]

can a contribution margin will negative?

[@TheFinanceStoryteller]

Yes, if variable costs are higher than revenue.

[@aishuu_5182]

@@TheFinanceStoryteller so what about the CMR ?

[@aishuu_5182]

@@TheFinanceStoryteller rest of the calculation can be calculate as normal case

[@TheFinanceStoryteller]

@@aishuu_5182 What do you mean by CMR? Contribution Margin Rate? As in: CM as percentage of revenue? Yes, that could be negative as well.

[@guillaumejeandrain6852]

Great video ! Would that be applicable to a restaurant ? Lots of different products, contribution margin would vary depending on the season as the price of the ingredients are not stable, ... Should we calculate the contribution margin for each and every product ?

[@TheFinanceStoryteller]

That could be an interesting exercise to do, on a meal level or the more aggregated "category" level (starters, main, drinks).

[@ebymamygorhalaetidoadf9602]

Character In the video It's great, I like it a lot $$

[@TheFinanceStoryteller]

thank you!

[@vsevolodsyskin9107]

Good job

[@TheFinanceStoryteller]

Thank you!

[@JayAlejandro]

very good!!

[@TheFinanceStoryteller]

Thank you, Jay!

[@GolfandIndustry]

I don’t understand the difference between contribution margin and gross margin. In this video you mention revenue - variable costs = contribution margin - fixed costs = operating margin Does the fixed costs take into consideration SG&A? How does COGS differ from variable costs? Is it just the fixed costs that go into the COGS? Revenue - COGS = gross margin - sg&a = operating margin

[@TheFinanceStoryteller]

Hi Ian! Yes, this is one of the confusing things in the world of finance. Companies either use the CM/OM method for the income statement, or the GM/OM one. In the CM/OM format, revenue - variable costs = contribution margin - fixed costs = operating margin. You could call this a profit and loss statement (P&L) by type of cost (variable or fixed). In the GM/OM format, Revenue - COGS = gross margin - SG&A - R&D = operating margin. You could call that a P&L by the business function that generates the cost. Simply put: inventoriable manufacturing cost goes into COGS, all the other functions (the "office or lab people") are either in SG&A or R&D. Fixed cost and SG&A are not necessarily the same thing. The biggest difference between the two is that depreciation of manufacturing buildings and machinery goes into fixed costs in the former method, and into COGS in the latter method. In other words, COGS for a company that makes products consists of (mostly) materials, labor and depreciation of manufacturing equipment. More on this in my COGS video kzbin.info/www/bejne/oHa4n3ablJ58Y9U and my video on gross profit kzbin.info/www/bejne/fpzRpqh4oNyMnck Another difference can be transportation and distribution cost of outgoing shipments from the factory to the customer. This would be a variable cost in one method, and SG&A in the other. I have even seen a company where internally they used metrics called gross margin before transportation and gross margin after transportation to make this more visible. Hope this helps!

[@fiifianyimadu6118]

What margin is too high or too low? say, if contribution per unit is 15%?

[@TheFinanceStoryteller]

Hello Fiifi! That is very hard to say. I think 15% would be relatively low. My main question is: how high are the fixed costs that need to be covered by the Contribution Margin? The margin that a company makes depends to a large extent on the industry it operates in, and the amount of unique value that its products or services have. Here are two suggestions for related videos to watch: Gross Margin and Operating Margin (comparing margins of 4 companies) kzbin.info/www/bejne/jHSwe619ZqaUjqM Price versus value kzbin.info/www/bejne/aIGyaqd_qZpraZI

[@mohamedniyas9956]

But what is fixed cost why do we want to subtract from content 🤔

[@mohamedniyas9956]

Where is the fixed cost come in problem

[@TheFinanceStoryteller]

Hi Mohamed! Not sure what your question is. In the video, I show that revenue minus variable costs equals contribution margin. Then as the next step you take contribution margin and deduct fixed cost to get to operating margin. An example of fixed cost is depreciation, or rent for a building.

[@أحمد-ج6ز5ذ]

اين الترجمة بالعربي فجاه اختفت

[@nealshah9575]

You Just Gain A Sub . Thanks❤

[@TheFinanceStoryteller]

Awesome, thank you!

[@ManhNguyen-lw5bx]

the video image is too poor, you need to fix it more

[@TheFinanceStoryteller]

It is fine on my end. You might have to go to settings - quality, and adjust there to higher image quality (depends on your internet bandwidth).

[@LinhNguyen-jb7jv]

the sound is not good I am quite disappointed

[@TheFinanceStoryteller]

Thanks for the feedback. This is one of my older videos, I have since upgraded my equipment. The content is very good though, so it is worth watching the video with sound off and subtitles on.

[@John_86j]

Hi, I have some very good news for you!

[@TheFinanceStoryteller]

Bring it on.

[@wildwindownorway]

i could kiss you. thank you

[@TheFinanceStoryteller]

Sending you back a virtual hug!!!! :-)

[@annaharpe8843]

thank you

[@TheFinanceStoryteller]

You're welcome!