10 Advice to Struggling Teams

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10.1 Low Contribution Margin

Contribution margin is revenue minus labor, material and inventory carrying cost. - expressed as a percentage of sales. It is reported on page 1 of The Courier /FastTrack as an aggregate average of each company's product portfolio. A good minimum benchmark is 30%. If contribution margin is below 30%, the company should consider reducing its cost of goods, and/or raising its prices.

Typical Problems

  • MTBF Ratings Are Too High: MTBF ratings directly affect material costs. Check the MTBF ratings of each product against the Customer Buying Criteria on the Segment Analyses of the Courier /FastTrack . Are they higher than they need to be? If the MTBF range is 12000-17000, and it is the #4 buying criteria (as in the Capstone® Low End Segment), there is little benefit in having MTBF set higher than the minimum.
  • Prices Are Too Low: Check the income statement in the company's annual reports. Compare the revenue of each product with the cost. Prices must be set high enough to allow reasonable revenue within the current cost structure.