Contribution margin analysis
From Wikipedia, the free encyclopedia
Contribution margin analysis is a technique used in brand marketing and product management to help a company decide what product(s) to add to its product portfolio. The manager asks what will happen to profits if a new product is added or an existing product is discontinued. Calculations take into account additional revenues, additional costs, effects on other products in the portfolio (referred to as cannibalization), and competitors' reactions.
Contribution margin is sales revenue less variable costs. It is the amount available to pay for fixed costs and provide any profit after variable costs have been paid.
