Do you really understand what 'contribution margin' is??

Since most physicians have not taken cost accounting (at least recently), we need to understand basic terminology when communicating with hospital types. One of the most common terms coming up with administrators is ‘contribution margin’ within the context of how much revenue you bring to the hospital, new services your specialty may bring or when doing a breakeven analysis for a procedure or device. So, I will try to explain what I understand. All or most businesses have fixed, variable and sometimes a mix of ‘costs’ to cover before they can show a profit. Fixed/variable costs are based on volume whereas direct/indirect costs are based on traceability and operating/non-operating costs are based on management. All are different ways at looking at the same thing.The variable costs like staffing (hospitals) for instance has to be covered before one can apply any revenue to covering fixed costs such as property taxes. So, essentially the CM is the amount of per unit revenue available after covering variable costs to help cover fixed costs. Another misconception is that CM is profit. Not. CM is what’s left after covering variable expenses. Once fixed costs are covered, what is left is then profit. 
This concept is also used in office practices to perform a ‘cost-volume-profit’ analysis for services or procedures you do to help you figure out if the service is profitable and if so how the profit would respond to raising or lowering prices for a certain volume of services. 
I illustrate this in Chapter 8 of the 2nd volume of "The Smarter Physician Volume 2" .in detail and will illustrate the concept with a real example of 'breakeven' next week.