Glossary
Contribution margin
Contribution margin is what one job or customer contributes toward fixed costs after its own variable costs are paid: price minus variable cost. It answers a narrower question than gross margin, which is whether a particular piece of work is worth taking at all. Anything with a positive contribution helps pay the rent.
01
The number to use when deciding whether to take the work
Not a Scorecard row. Contribution margin is a decision tool, pulled out when the team is arguing about a price, a product line or a customer nobody enjoys serving. What can sit on the weekly board is the mix: the share of jobs booked this week below an agreed price floor, owned by whoever signs off on pricing.
Companies drop work that looks unprofitable once fixed costs are spread across it, then discover the overhead did not leave with the customer. Contribution margin asks the sharper question: if this job disappears tomorrow, what money disappears with it? The answer is often smaller than the allocation suggested, and the work turns out to be worth keeping at a better price.
Worked example: A small foundry considered dropping short-run castings, which showed a loss once factory overhead was spread over them. Contribution per furnace hour was positive on every one, and the furnace sat idle three days a week. They kept the work, raised prices by eight percent, and lost two customers out of nineteen.
Sources: klipfolio.com/kpis/financial; Principles of Accounting, Volume 2: Managerial Accounting, section 3.1, OpenStax
Gross margin
Gross margin is revenue minus the direct cost of delivering it, as a percentage: a ten thousand dollar job costing six thousand runs at forty percent.
02Ratio metric
A ratio metric divides one number by another: win rate, cost per lead, revenue per employee, the percentage of orders shipped on time.
03Utilization rate
Utilization rate is the share of available hours that are billable or productive: forty hours paid, thirty billed, seventy-five percent utilization.
04KPI examples by department: sales, ops, finance, HR
Concrete KPI examples for each department in a small company, tagged leading or lagging and weekly or monthly, to help you build a Scorecard that works.
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