Marginal Profit
Categories: Company Management, Metrics
See: Margin. See: Profit.
The marginal flavor of profit is the profit contribution on that laaaaast item sold. Like...in order to sell a tube of toothpaste, you need a factory to make vats of soapy stuff. And packaging, i.e., the tube. That factory costs a ton of dough to build, right? Millions. Say it's $20 million. So if you sell one tube of toothpaste, it cost $20 million plus the cost of the vat and the packaging and so on. But if you sell 20 million units, well then all of the infrastructure and everything else to spit out those tubes is "paid for." Then the marginal cost of that 20,000,001st tube is really just the cost of the goop inside and the packaging. Maybe a nickel? Something like that. So if that 20,000,001st tube sold for $3, then its marginal profit was a whole lot more than what the first one contributed.
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Finance: What is contribution margin?12 Views
Finance a la shmoop... what is contribution margin, well, shmoop has spent a fortune
building the oh so fine content you digest and then mostly for free and you [Girl watching Shmoop videos]
could pay us if you wanted to..For years we've made no operating profit choosing
instead to roll any excess cash we found in our cigar boxes into building more
content so while our operating margins ie the cost of running the entire
business paying our writers, our clowns, our rent, our cloud storage facilities the [Clown bouncing on the spot]
office jester we have on retainer permanently to entertain the writers
have been low or nearly zero our contribution margins are really high
that is our cost of serving another thousand pages which you view hungrily
clicking on our ads thank you very much that cost to us is well something less [Person holding half a penny]
than a penny but we sell it to advertisers for a thousand page views
and about three bucks a unit there thousand pages for three bucks what a
deal so the contribution margin of that additional n plus one unit of our
product a thousand page views is extremely high like $2.99 divided by
three dollars or well over 99% contribution margin those are
our contribution margins here at Shmoop, very very high and not all companies [Man discussing contribution margins]
have such high contribution margins our sister company robot-date-eat-pray-
love which manufactures emotionally deep robots designed to take the place of [Emotional robot walking with a woman]
well you know special friends well they sell their robots for 15 grand each
but their cost of building that robots really high like 12 grand each no matter
how many robots they make so RDEPL carries a contribution margin of just 15
minus 12 or 3 grand / 15 grand or about 20 percent sorry all these numbers may
sound a bit tedious but if you're on a date with the robot they make for some
scintillating conversation [Girl sitting with robot on a date]