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.
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.
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.