The scholarly definition and reality are two different perspectives. The student is taught that marginal revenue equals the additional dollars generated for an additional single unit of sales. It is literally taken right down to the micro measurement. This is simple to understand but in small business, the scope of its meaning and impact are substantial to the bottom line.
Definition of Contribution Margin
Contribution margin is a core business concept and is often used in cost accounting to identify the amount of financial contribution a sold product provides to the company. Simply put, contribution margin is the sales price less the direct costs (sometimes referred to as variable costs).
In the restaurant business, alcohol is the single best margin generator. If you are going to have a profit, this is where the money is made. As an owner, you need to understand the value of alcohol sales and the associated costs. This aspect of operations not only generates high contribution margins, it covers its share of costs and ultimately adds to the bottom line.