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KPI for Measuring of Contribution Margin Ratio posted in category Hotels

WinningKPI - Hotels - KPI for Measuring of Contribution Margin Ratio posted in category Hotels Oana Boteanu
The KPI with this visual info-graphic is included in Hotel KPIs pack.
Details:
This indicator is for measuring the contribution margin ratio for hotels' revenue. In other words, the Contribution Margin Ratio KPI looks at what % of revenue is consumed by variable costs, and how much is left for fixed costs and profit.
Hotel Managers use this KPI as the foundation for a Cost-Volume Profit analysis (CVP), which lies at the base of any strategic decision.
For example, if a hotel raised the rate of 5 executive rooms by $50 each per day, this would potentially increase revenue by $250 dollars per day, or a $91,250 per year (if let every day of the year). If the hotel had a contribution ratio of 75 % (where 25% of revenue is consumed by variable costs and 75% is consumed by fixed costs), when the fixed costs have been covered, profit will accumulate to 75% of every additional dollar of sales.
Hence, if the 5 executive rooms would be let every day, the hotel will experience a profit increase of $68,437.5 (75% of $91,250).

Formula:
Contribution Margin Ratio = Contribution Margin/Revenue x 100
Or
Contribution Margin Ratio = (Revenue – Variable Costs)/Revenue x 100

KPI Units: %

KPI Time Frame: update quarterly or annually

Posted by Oana Boteanu | Help to protect community: Flag for moderation

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Here are comments:

KPI Expert As mentioned above, the Contribution Margin ratio is part of the Cost Volume Profit Analysis (CVP).
CVP stands for analysing the project future levels of profitability. It is used to make decisions in terms of improving performance (and profitability) or in terms of entering a new market.
Contribution Margin (CM) is very important for predicting profitability, as it is at the foundation of measuring profit.
From the example above, where the hotel has a CM ratio of 75% and will be earning 75% of every dollar of sales, after fixed costs have been covered, this figure is then essential for measuring profitability.
Profit accounts for 75% of every dollars sold, after both fixed and variable costs have been covered.
If variable costs rise, the CM will drop and if fixed costs rise the profit will drop, as it will take longer to start earning 75% of every dollar sold.

Oana Boteanu | + | September 8, 2012 at 9:38 am

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