The contribution margin (CM) is what a service leaves over after deducting the costs it directly causes. This amount contributes to covering the fixed costs. teamspace calculates two levels: CM1 from all primary postings and CM2, which also includes repostings and allocations. Both are available on the project and up to date every day, not only in the monthly report.
CM1: revenue minus direct costs
CM1 is derived solely from the four posting sources, with no extra effort:
- revenue from outgoing documents,
- personnel from time bookings (hours booked × internal cost rate),
- external services from incoming documents,
- expenses and commissions from cost elements,
- other direct costs from general postings.
CM1 shows project management at any time whether the project is in the black. It can be aggregated by customer, department and area and is consistent, because all sources carry the same three dimensions.
CM2: plus secondary postings
What CM1 does not include are the overheads: administration, IT, management, servers, licences and the remainder of the salaries. They are added via secondary postings: repostings, allocations and the allocation of the remainder on the salary cost centre. The formula is:
CM1 (primary postings) + secondary postings = CM2Example cost object KLR-KT1, year to date:
| Item | Amount |
|---|---|
| CM1 from primary postings | €800 |
| Reposting (cost category 9200) | −€200 |
| Allocation of the salary remainder (cost category 9390) | −€50 |
| CM2 | €550 |
Without allocations, every project would look good while the company still made a loss, because the overhead would not show up anywhere. CM2 makes it visible.
Three levels of evaluation
| Level | What you see | Where from |
|---|---|---|
| Project (cost object) | CM1 and CM2 per project or contract. Subprojects of a framework contract can share a cost object. | detail manager of the cost object |
| Customer | plan, actual, CM1 and CM2 across all of a customer’s projects and internal activities, including repostings and allocations | via the target project of the cost object |
| Area (cost centre) | CM per cost centre, up the cost centre tree to the whole company | detail manager of the cost centre, cost accounting analysis |
Where you see the contribution margin
- Detail manager of a cost object or cost centre, tab
Overview: tiles with metrics, monthly values and cost categories (see Cost centres, cost objects and cost categories in the detail manager). - Cost accounting analysis: for each row the reconciliation CM1 + secondary costs = CM2, by quarter (see Work with the cost accounting analysis).
- Tab
Plan & analysis: planned CM1 against actuals (see Enter a plan and compare it with actuals). - Project reports in controlling: the contribution margin of a project in the project context (see Project reports).
Why utilisation is such a powerful lever
For service providers, 60 to 80% of costs are personnel. An hour that was not sold cannot be put into stock. Rule of thumb: with 50 full-time staff and a daily rate of €1,500, one percentage point more utilisation brings around €165,000 in annual profit. The remainder on the salary cost centre shows where these hours are lost (see Allocate personnel costs via a salary cost centre).
Limitations
- CM1 contains no overheads. To answer “Does this area pay for itself?” you need CM2.
- Accuracy depends on the internal cost rates. If they are too low, every project looks too good. Maintain them per period (see Set up cost rates, commissions & ad-hoc reports).
- Without a salary cost centre, personnel costs are only estimated: holidays, sickness and idle time do not show up anywhere.
Related topics
- Work with the cost accounting analysis Cost accounting How-to
- Set up an allocation rule Cost accounting Configuration
- Project controlling methods Controlling Concept
- Cost control: contribution margin, recharging & cost accounting Costs & travel expenses Concept
- Topic: Cost accounting Cost accounting
- Contribution margin accounting with teamspace