Which work pays for the overheads?
What each service, client or product leaves behind once the costs that rise and fall with it are taken out. It shows which parts of the business are carrying the overheads, and which are quietly being carried.
Get a finance reviewRevenue − Variable costs. Contribution margin % = (Revenue − Variable costs) ÷ Revenue × 100
Varies by model. Services firms often see 40% to 60%; e-commerce brands after landed cost, fulfilment and marketing often 20% to 40%. Any line consistently below its share of overheads needs attention.
Revenue less variable costs: the costs that increase directly with each piece of work or each sale, such as delivery time, freelancers, materials, shipping, payment fees and licences. Fixed costs such as rent, management salaries and core software are left out. It can be shown as a total, as a percentage of revenue, or per unit, project or client.
Contribution margin is the number that separates busy from profitable. Overheads are paid from contribution, so any service or client with a low or negative contribution makes the problem worse the more of it you sell. It is also the basis for pricing decisions, discounts and whether to keep a product or service line, because it shows what you actually gain or lose from one more sale.
The split between variable and fixed costs is a judgement, so make it once, write it down and apply it consistently. Measure contribution by service line and by client, not only in total, as the average hides the losers. Be wary of dropping a line purely because its contribution is low: if it covers even part of the fixed costs, removing it can reduce profit unless those costs go too.
Most owner-managed businesses don't, or they work it out in a way that flatters the result. We'll calculate it from your own numbers and show you what it's telling you.
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