Contribution Margin 1

COGS is an important metric on the financial statements as it is subtracted from a company’s net revenues to determine the Contribution Margin 1. The Contribution Margin 1 is a profitability measure that evaluates how efficient you are in managing your supplies in the production process.

So let's take a look at our Contribution Margin 1 Analysis!

Definitions

Before you dive into data analysis, let's ensure that we are on the same page. Gross Margin and Contribution Margin 1 are defined as:

Gross Margin = (Net Revenue - COGS) / Net Revenue x 100        

Contribution Margin 1 = Net Revenue - COGS   

with

The Contribution Margin 1 and Gross Margin are shown as color-coded combined chart followed by absolute figures:

What’s Included in COGS?

A simple way to think about COGS is all the costs involved with getting an item into your inventory and prepared for sale. 

The following costs are often included in COGS:

1. Product cost: How much it costs to order items from your manufacturer or distributor
2. Freight in: How much it costs to get those purchased products delivered to you
3. Duties and fees: Any costs associated with design, kitting, or assembly of the products

Use Cases

This report provides you with an overview of your profitability: everyone wants to make a profit, that is why it is really important to monitor your Contribution Margin 1 & Gross Margin. If both of them are high, it means that, after variable expenses, you are managing to make a profit!

For this, you can use this report to find out:

• If your cost of goods sold is in line with our revenue growth
• Identify if you are able to lower your COGS over time to increase your Contribution Margin 1
• Validate your pricing strategy

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