Total contribution the amount of money left over after variable costs have been subtracted from revenue. The money contributes towards fixed costs and profit.
Total contribution = (Selling price − Average variable cost) × Quantity
Total contribution = Total revenue − Total variable costs
Contribution per unit = Selling price − Average variable cost
Frequently Asked Questions: Seller Contributions & Contribution Margin
What is seller contribution in real estate?
In real estate, a seller contribution (also called seller assist or seller concession) refers to an amount of money that the home seller agrees to pay towards the buyer's closing costs or other expenses associated with the purchase, such as prepaid items or discount points to buy down the interest rate.
What does seller contribution mean in real estate?
It means the seller is willing to give the buyer a credit at closing to help cover certain costs the buyer is responsible for. This is negotiated as part of the purchase agreement and is typically a percentage of the sales price or a fixed dollar amount. It's a way for the seller to incentivize the buyer or help them with upfront costs without directly lowering the purchase price.
Are there limits on seller contributions in real estate?
Yes, loan programs (like Conventional, FHA, VA, USDA) set limits on how much a seller can contribute towards the buyer's closing costs. These limits are usually based on a percentage of the purchase price and vary depending on the loan type and the buyer's down payment amount. Exceeding these limits is not allowed by lenders.
What is Contribution Margin (in business/accounting)?
Contribution Margin is a profitability metric that represents the revenue remaining after deducting variable costs associated with producing or selling a product or service. It indicates how much each unit sale contributes towards covering the business's fixed costs and generating profit.
Formula: Contribution Margin = Total Sales Revenue - Total Variable Costs
Or per unit: Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit
Are variable selling and administrative expenses included in Contribution Margin calculations?
Yes, variable selling and administrative expenses are considered variable costs and are therefore subtracted from sales revenue when calculating the contribution margin. This is because these expenses (like sales commissions, variable shipping costs) fluctuate directly with sales volume, just like variable production costs (e.g., raw materials).
Are selling and administrative expenses included in Contribution Margin?
Only the variable portion of selling and administrative expenses is included (subtracted) in the calculation of Contribution Margin. The fixed portion of selling and administrative expenses (like fixed salaries for sales managers, fixed office rent) are considered fixed costs and are not subtracted when calculating Contribution Margin. They are subtracted later to determine Net Income.
What does an increase in selling price do to Contribution Margin?
Assuming variable costs remain constant, an increase in selling price will increase the contribution margin per unit. This is because the formula is Selling Price Per Unit - Variable Cost Per Unit. A higher selling price directly results in a larger margin contributing towards fixed costs and profit.
