How can we improve our contribution margin? (2024)

You can improve your margins two ways. If your company is a differentiator, you can raise prices. The company differentiates by creating high demand with a good design, high awareness, and easy accessibility. You sacrifice some of the demand with a higher price.

If your company is a cost leader, it is more inclined to reduce material and labor costs, but offer a competitive price structure. Cost leaders achieve this by lowering the MTBF and positioning the product nearer the trailing edge of a segment. They will reduce labor costs by automating their plants. Demand is driven by aggressive pricing and margins are maintained from a lower cost structure.