Margin points are earned in three areas.

• Contribution Margin Percentage (Up to 33 1/3 points). Each product with a contribution margin greater than 30% earns points. If all products have contribution margins greater than 30%, you earn 33 1/3 points.
• Net Margin Percentage (Up to 33 1/3 points). Each product with a net margin greater than 20% earns points. If all products have margins greater than 20%, you earn 33 1/3 points.
• ROS or Return On Sales (Up to 33 1/3 points). ROS is defined as (Net Profit / Total Sales). ROS looks at the entire company's after tax margins. You earn 33 1/3 points for an ROS of 10% or greater. You earn nothing for a negative ROS. An ROS between 1% and 10% is scaled. For example, an ROS of 5% would earn 16.65 points.

To be considered for contribution and net margins, a product must start the year with a plant and begin making sales on January 1. Products that are in R&D at the beginning of the year are ignored.

Why do margins matter? And why focus upon Contribution Margin, Net Margin, and Return On Sales? To simplify things, let's consider an example where you have only one product.

Example

REVENUE ($000)	Awsum			Product	Awsum
Sales	$30,000			Price	$30.00
VARIABLE COSTS				Labor	$7.00
Direct Labor	$7,000			Material	$11.50
Direct Material	$11,500			Inventory Carry	$0.50
Inventory Carry	$500			Unit Margin	$11.00
Total Variable Costs	$19,000			Units Sold	1,000,000
Contribution margin	$11,000	36.7%
PERIOD COSTS
Depreciation	$2,000
SG&A: R&D	$500
Promotion	$1,300
Sales	$1,100
Admin	$300
Total Period Costs	$5,200
Net Margin	$5,800	19.3%
Other (fees, write-offs)	$100
EBIT	$5,700
Interest	$2,500
Taxes	$1,120
Profit Sharing	$50
Net Profit	$2,030	6.8%