Contribution Margin-based Pricing

Definition of Contribution Margin-based Pricing

The revenue from either an item or a service that is provided minus the variable expense of producing it in order to make the most profit from a single item.

Contribution Margin-based Pricing

Description of Contribution Margin-based Pricing

It displays the accumulated revenue that is accessible post variable expenses in order to ensure the established costs and make the business profitable. In order to find it, subtract the variable expenses from the revenue.

For instance, if your item costs $10 and the entity variable price of it is $2, then the contribution margin is $6.

Advantages of Contribution Margin-based Pricing

This pricing approach permits single items to be flexible. You can also take into consideration demand factors.

Contribution Margin-based Pricing

Disadvantages of Contribution Margin-based Pricing

You may run into problems assigning expenses properly, therefore it’s not easy to evaluate the best contribution and may even turn out to be incorrect.

Contribution Margin-based Pricing