Effective Decision Making: How Contribution Margin and the Breakeven Calculation Drive Smarter B2B Food Commerce Initiatives
In today’s world, people may associate marketing with social media campaigns and print advertisements. However, in the world of B2B relations, the focus is a little diGerent. B2B, or business-to-business, refers to a transaction between businesses such as a manufacturer/ wholesaler and a retailer. In B2B relations, success isn’t about generating customer leads or appealing to an individual’s emotions. Rather, it’s about making decisions that include financial analysis and marketing strategy in order to facilitate data driven conversations to achieve successful business relations.
The Importance of Contribution Margin in the Industry of B2B Food Commerce
Contribution margin is the diGerence between sales revenue and costs associated with the sale.
In the example of a manufacturer/ wholesaler to a retailer, contribution margin can reveal which products add the most value after the cost of production and logistics.
The benefits of Contribution Margin can apply to Manufacturers/ Wholesalers in the following ways:
Product strategy: Marketing eGorts should prioritize promotions for the product line that delivers the highest contribution margin in order to ensure resources are spent pushing products that showcase the highest chances of profitability.
Profitability outlook: In food manufacturing, contribution margin can aid in avoiding high volume orders with minimum profitability.
Retailer negotiations: Contribution margin can be used to justify pricing when buyers push for discounts, such as, price per case negotiations.
Breakeven and its importance in Risk Management
The breakeven calculation reveals the revenue needed to cover costs prior to determining profit or loss.
The breakeven calculation can benefit manufacturers/ wholesalers in the following ways:
New Product Development: Prior to implementing the production of a new product, the breakeven calculation can reveal how many units are needed to “breakeven”.
Product Pricing: A manufacturing food company can use the breakeven calculation to aid in developing product pricing by revealing if a product’s costs are covered prior to profit.
Equipment Costs: When a manufacturing food company has to make large capital purchases, such as obtaining new machinery, it can benefit from the breakeven calculation to ensure that sales volume will cover the cost of investment.
Conclusion
The focus of B2B marketing is to cultivate relationships with key industry players in order to obtain partnerships that drive profitability. This is achieved by demonstrating diGerentiation, reliability, and value. By utilizing contribution margin and the breakeven calculation, industry leaders can gain insights on the profitability of products, have leverage during negotiations, and foster smarter business strategy.
