Contribution margin

• What is the contribution margin?
• What is the difference between contribution margins 1 and 2?
• How can the contribution margin be calculated?
• How does METRO support restaurateurs with their calculations?

The contribution margin indicates the amount remaining from the selling price of a product after deducting variable costs, such as material costs and raw materials. This key figure can be used to assess whether the product offered covers fixed costs such as rent, wages and energy and contributes to the profitability of the business. In this respect, the contribution margin is used to monitor success, but at the same time it also forms the basis for calculating offers.

What is the difference between contribution margins 1 and 2?

When calculating the contribution margin, there is a difference between contribution margins 1 and 2. Both contribution margins are informative for restaurateurs. They provide information to help you make informed decisions about pricing and product planning.

Contribution margin 1: Contribution margin 1 refers to the direct variable costs. These include ingredients and raw materials that are directly associated with the preparation or production of a dish or drink. Contribution margin 1 thus shows what remains of the revenue after deducting the purely product-related costs to cover the fixed costs.

Contribution margin 2: Contribution margin 2 also considers product-related overheads. These include, for example, a share of the costs for kitchen staff or special machines for preparing a particular dish. Contribution margin 2 is therefore even more detailed, since additional overheads are included in addition to the fixed costs.

How is the contribution margin calculated?

The following example illustrates how restaurateurs calculate contribution margins 1 and 2:

A restaurant sells a burger for 10 euros. The variable costs, i.e. the ingredients, are 3 euros. The pro-rata costs for staff and kitchen equipment for preparation are 2 euros.

Calculating contribution margin 1:

To calculate contribution margin 1, restaurateurs must subtract the variable costs from the sales price.

The formula is:

Sales price – variable costs = contribution margin 1.

10 euros – 3 euros = 7 euros

In this case, a contribution margin of 7 euros remains to cover fixed costs such as rent and general operating costs.

Calculate contribution margin 2:

In addition to variable costs, contribution margin 2 also considers the pro-rata or product-related overheads.

The formula is:

Selling price – variable costs – pro-rata overheads = contribution margin 2

10 euros – 3 euros – 2 euros = 5 euros

Contribution margin 2 shows the actual contribution of the burger to covering the restaurant's total operating costs and profitability. In this case, 5 euros remain.

How can contribution margins be used to optimise the range?

Caterers can use contribution margins to find out which food and drinks are profitable and which are not. With dishes that have a low contribution margin, the fixed costs cannot be covered in full. In this respect, they reduce the overall profit. By regularly calculating the contribution margin for the entire menu, restaurateurs can specifically highlight the profitable components, i.e. dishes with a higher contribution margin. They can either adjust or remove dishes and drinks that have a low contribution margin. In this way, they can adapt the menu to guest preferences and invest in the success of the business.

How does METRO support restaurateurs with costing?

METRO does not only supply restaurateurs with ingredients and kitchen equipment, but also provides them with advice. In the AI-supported analysis of METRO Gastro-Consulting, experts work with customers to evaluate their range and support them in optimising their menu and increasing profits. In addition, METRO offers solutions for restaurateurs in administrative processes with the applications of DISH – including the calculation of food and beverages. The cloud-based POS system DISH POS also provides an overview of the economic performance of individual products.