Most accounting software programs do not calculate the CM. Why is the CM so important?
Almost all businesses track REVENUE, COST OF GOODS or SERVICES with the resultant – GROSS MARGIN. However, there is a principle called VARIABLE COSTS that needs to be explained. A variable cost is one that is proportional to revenue. Meaning, when revenue is created, then an expense occurs. Many hidden costs are accounted for in administration or overhead costs that are actually tied to revenue and should be in a category called “Variable” costs. When all of the variable costs are subtracted from GROSS MARGIN, then a magic number happens called the Contribution Margin (CM)
Most accounting software programs do not calculate the CM. Why is the CM so important? Because when you know the CM% then you can calculate the Break-Even for the company or any revenue-generating project
BREAK-EVEN = Fixed Expenses / CM%
Contribution margin Management Accounting: Curt learned from Dale Richards’ Valuation Presentation
Contribution margin Management Accounting: Curt Finch, Journyx, Austin Tx, learned from Dale Richards’ Valuation Presentation, Excel management’s techniques provide CXO;s the opportunity to add revenue, profit’s and value. Executives learned key business concepts from Dale Richards’ presentation on Business Valuation Principles – How to Increase Your Business Value, Financially, Operational and Strategically.
Dale S. Richards specializes in management, marketing, operation optimization & business valuation consulting and is a 25+-year turnaround expert. He has implemented success concepts into results in 150+ companies. Dale is a Certified Valuation Analyst (CVA) with NACVA, a Vistage International CEO-Board Chair in Utah and a Vistage International Speaker. Visit www.successbiznow.com to learn more about Dale and business valuation services.
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