ShmoopTube
Where Monty Python meets your 10th grade teacher.
Search Thousands of Shmoop Videos
Tech Videos 99 videos
What is After Hours Trading/Extended Trading? After hours trading describes any trades made after the market closes or before the market opens. Bec...
What are T-Notes, T-Bonds, and TIPS? T-Notes are debt securities (like bonds) that are issued by the government and mature within one to 10 years....
How do you get a startup funded? Depends if we're talking about a tech startup, or a non-tech startup. If you've got a promising, budding tech comp...
Finance: What is contribution margin? 12 Views
Share It!
Description:
When assessing the amount of profitability in a company’s various services and/or products, the contribution margin is a metric that is relied upon for calculation purposes. As a formula, it is a simple Sales minus Variable Costs equation. It is an important tool for gauging pricing. Companies that may be vulnerable due to an over reliance on 1-2 highly profitable products can find themselves in a cash crunch if one of the Variable Costs suddenly becomes more expensive and the company has a cap on how high in can raise prices without losing competitiveness with its rivals. A manager’s ability to reduce Variable Costs will increase the contribution margin and hopefully allow for increases in sales, and commensurate incentive bonuses.
- Social Studies / Finance
- Finance / Financial Responsibility
- College and Career / Personal Finance
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Accounting
- Terms and Concepts / Careers
- Terms and Concepts / Company Management
- Terms and Concepts / Company Valuation
- Terms and Concepts / Credit
- Terms and Concepts / Insurance
- Terms and Concepts / Investing
- Terms and Concepts / IPO
- Terms and Concepts / Managed Funds
- Terms and Concepts / Metrics
- Terms and Concepts / Mutual Funds
- Terms and Concepts / Tax
- Terms and Concepts / Tech
- Terms and Concepts / Trading
- Terms and Concepts / Trusts and Estates
Transcript
- 00:00
Finance a la shmoop... what is contribution margin, well, shmoop has spent a fortune
- 00:08
building the oh so fine content you digest and then mostly for free and you [Girl watching Shmoop videos]
- 00:14
could pay us if you wanted to..For years we've made no operating profit choosing
- 00:19
instead to roll any excess cash we found in our cigar boxes into building more
- 00:24
content so while our operating margins ie the cost of running the entire
Full Transcript
- 00:29
business paying our writers, our clowns, our rent, our cloud storage facilities the [Clown bouncing on the spot]
- 00:34
office jester we have on retainer permanently to entertain the writers
- 00:39
have been low or nearly zero our contribution margins are really high
- 00:45
that is our cost of serving another thousand pages which you view hungrily
- 00:50
clicking on our ads thank you very much that cost to us is well something less [Person holding half a penny]
- 00:55
than a penny but we sell it to advertisers for a thousand page views
- 00:59
and about three bucks a unit there thousand pages for three bucks what a
- 01:03
deal so the contribution margin of that additional n plus one unit of our
- 01:08
product a thousand page views is extremely high like $2.99 divided by
- 01:14
three dollars or well over 99% contribution margin those are
- 01:19
our contribution margins here at Shmoop, very very high and not all companies [Man discussing contribution margins]
- 01:23
have such high contribution margins our sister company robot-date-eat-pray-
- 01:28
love which manufactures emotionally deep robots designed to take the place of [Emotional robot walking with a woman]
- 01:33
well you know special friends well they sell their robots for 15 grand each
- 01:39
but their cost of building that robots really high like 12 grand each no matter
- 01:44
how many robots they make so RDEPL carries a contribution margin of just 15
- 01:50
minus 12 or 3 grand / 15 grand or about 20 percent sorry all these numbers may
- 01:56
sound a bit tedious but if you're on a date with the robot they make for some
- 02:00
scintillating conversation [Girl sitting with robot on a date]
Related Videos
GED Social Studies 1.1 Civics and Government
What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...
What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...
How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...