Single-stage contribution margin accounting
- Revenue minus variable costs gives the contribution margin
- All fixed costs are deducted as one total
- Quick to calculate, good for a first assessment
- Does not show which department causes the fixed costs
Contribution margin accounting for service firms: per project, client and department.
Contribution margin accounting deducts from revenue the costs that a piece of work directly causes. What remains is the contribution margin: the amount that goes towards covering fixed costs and towards profit. teamspace calculates it from hours, expenses and documents, up to date every day, in two stages.
Worked example
How a project's contribution margin adds up.
A consulting project for Müller GmbH, project number P-2026-018. In teamspace each line comes from its own source, and the total sits on the project without a month-end close. All amounts are sample figures.
- Revenue
- €120,000 from outgoing invoices
- minus staff
- −€62,000 hours booked times internal cost rate
- minus external services
- −€18,000 from incoming invoices, assigned to the project line by line
- minus expenses and commission
- −€4,500 from cost items
- minus other direct costs
- −€1,500 from general postings
- = Contribution margin I
- €34,000 CM I margin of 28.3 per cent of revenue
Definition
The contribution margin shows what a piece of work adds towards fixed costs.
Contribution margin accounting is a form of marginal costing. Rather than spreading every cost across every piece of work, it deducts from revenue only the costs that this work directly causes. The formula: contribution margin = revenue minus variable or directly attributable costs.
If the contribution margin is positive, the project helps pay for rent, administration and management. If it is negative, the project costs more than it brings in, before a single euro of overhead lands on it. Only when the contribution margins together exceed fixed costs does the company make a profit.
The method emerged between the 1950s and 1970s as an alternative to full costing. The question shifted from 'what does one unit cost?' to 'what does one unit contribute towards fixed costs?'. The second question suits service firms better, because their largest cost block, staff, is fixed anyway.
Single or multi-stage
Multi-stage shows exactly where the margin is lost.
Single-stage accounting deducts all fixed costs in one block. Multi-stage accounting deducts them layer by layer and shows a separate contribution margin after each stage.
Multi-stage contribution margin accounting
- Fixed costs are deducted in stages, by what caused them
- CM I per project, then client, department and company
- Shows whether a project carries itself and whether it also carries its share of internal costs
- This is how teamspace calculates, with CM I and CM II
From CM I to CM II
CM II includes what was distributed in-house.
CM I contains every cost booked directly to the project: hours, external services, expenses. For the project lead it is already the most important figure. What is missing are costs distributed in-house. teamspace calls them secondary postings and includes them in CM II.
For the Müller GmbH project, with sample figures, it looks like this. On one trip a consultant also visited Schmidt AG, but the 640 euros of travel costs sat entirely with Müller. A reallocation moves 320 euros to the Schmidt AG project, relieving Müller. At month end, the salary cost centre also distributes what is left over, meaning holiday, sickness and idle time, across the projects. Müller's share is 300 euros.
- CM I from primary postings: €34,000
- plus relief from the reallocation: €320
- minus remaining share of the salary cost centre: €300
- CM II: €34,020
For a single project the difference is often small. At department level it is larger, because that is where allocations for IT, administration and management land. How a support team at plus 5,000 euros in CM I ends up at minus 2,500 euros after the IT allocation is shown on the cost centre accounting page.
“Staff in both support and project planning can see orders and invoices. That was not possible before.”
In teamspace
The margin sits on the project, not in next month's report.
teamspace needs no separate calculation run for CM I. Hours come from project time tracking and are valued at the internal cost rate held per employee and period. Invoices, expenses and postings carry their cost object automatically. Open the project and you see today's position.
Figures roll up on three levels:
- Per project via the cost object. If several projects share a cost object, such as the sub-projects of a framework agreement, the individual project analysis stays unchanged. You see secondary postings on the cost object, which looks at all its assigned projects together.
- Per client via the target project. A single project can be going well while the client as a whole is costing money, perhaps because of many proposals and unpaid concept work. Through the target project every cost object knows its client, and teamspace brings plan, actual, CM I and CM II together across all of that client's projects and internal activities, including reallocations and allocations.
- Per department via the cost centre, all the way up to the whole company.
The 'Internal cost analysis' tile shows totals by cost centre, cost object and cost type, by quarter. Each row shows the bridge: CM I plus secondary costs gives CM II.
Where the levers are
- Margin
- per project, client, department
- Utilisation
- per employee, team, department
- Pricing
- per client, contract type
First call
Which of your projects really pays its way?
Name a project whose margin you can only estimate. In the call we show how teamspace calculates its contribution margin and which cost rates and rules that requires.
More in controlling
What the contribution margin is built from.
Contribution margin accounting is the results stage. What happens before it is covered here.
Cost and performance accounting
Cost type, cost centre and cost object on every posting, pre-filled by rule.
Learn moreCost centre accounting
Allocate overheads to departments, the salary cost centre.
Learn moreReporting
Client analysis with contribution margin and income per hour for each client.
Learn moreProject controlling
Budget, progress and forecast on the individual project.
Learn moreIncoming invoices
Assign external services to the project line by line.
Learn moreCost control
The process from planning to post-calculation.
Learn more
Part of controlling
The contribution margin is one stage of controlling.
Contribution margins, cost centres and reports all calculate from the same postings in teamspace. How project, client and department are analysed together is shown in the overview of the controlling software.
Go to controlling softwareWhat it is about
Contribution margin accounting: what it does and where it stops.
Contribution margin accounting answers whether a piece of work brings in more than it directly costs. In manufacturing that work is a product; for a service firm it is a project, a maintenance contract or a ticket. The multi-stage form deducts fixed costs stage by stage and shows where the margin is earned and where it is lost.
Two limits come with it. CM I contains no overheads, so a project with a good CM I can still be a burden on the company. And a contribution margin is only as accurate as the cost rates behind it. Anyone who never adjusts internal hourly rates is calculating with an assumption. The salary cost centre shows whether the rates match actual salaries.
In teamspace, contribution margin accounting is part of cost and performance accounting, which is included in the office and enterprise editions. The process from plan to post-calculation is described under cost control. teamspace has been developed by 5 POINT AG in Darmstadt since 1999.
Related modules
Where the figures in the contribution margin come from.
Revenue and costs arise in three modules and reach the project without being transferred by hand.
Time tracking
Hours booked become personnel costs on the project at the internal cost rate.
- Hours booked to the project
- Cost rate per period
- Personnel costs without rework
Project management
The project is the cost object, with plan, actual and contribution margin in one place.
- CM I on the project
- Client via the target project
- Plan versus actual
Invoicing software
Outgoing invoices supply the revenue, incoming invoices the external services.
- Revenue per line
- External services per line
- Documents to DATEV
First call
Let's work out your contribution margin together.
In the call we go through a typical project with you, from cost rates to CM II, and clarify which stages you need for clients and departments.
Frequently asked questions on contribution margin accounting
What is contribution margin accounting?
Contribution margin accounting deducts from the revenue of a piece of work the costs that this work directly causes. The result is the contribution margin, the amount that goes towards covering fixed costs and towards profit.
How do you calculate the contribution margin?
Contribution margin = revenue minus variable or directly attributable costs. Example: a project with €120,000 revenue, €62,000 staff costs, €18,000 external services, €4,500 expenses and €1,500 other direct costs has a CM I of €34,000.
What is the difference between single-stage and multi-stage contribution margin accounting?
Single-stage accounting deducts all fixed costs in one block. Multi-stage accounting assigns them to stages by what caused them, such as project, client, department and company, and shows a separate contribution margin after each stage.
What is the difference between CM I and CM II in teamspace?
CM I works with primary postings, meaning everything booked directly to the project or cost centre. CM II also includes secondary postings: reallocations, allocations and the remaining share of the salary cost centre.
Can teamspace show the contribution margin per client?
Yes. Every cost object knows its client through its target project. That gives CM I and CM II per client as well, across all projects and contracts, including reallocations and allocations.
How current is the contribution margin in teamspace?
Up to date every day. Hours, expenses and documents carry their cost object from the moment they are entered, so CM I is on the project without a month-end close. Allocations run on the schedule you set on the rule, for example the 3rd of the following month, and then distribute the previous month's figures.