The VMR, or Variable Margin Rate, is an essential indicator for companies that want to analyze the profitability of their products or services. It measures the share of margin generated by each sale, after deducting variable costs. This calculation is crucial for making strategic decisions, optimizing cost management, and improving the company's overall financial performance.
We explain how to calculate TMCV, why it is important, and how it can help you better manage your business.
The TMCV represents the percentage of each euro of sales remaining to cover fixed costs and generate profit, after deducting variable costs. As a reminder, variable costs are those that vary directly with production or sales volume (e.g., raw materials, transportation costs). Fixed costs, on the other hand, are expenses that remain constant regardless of the volume of activity (e.g., rent, salaries).
The TMCV is calculated as follows:
Or: Margin on Variable Cost = Revenue - Variable Cost
This formula gives a percentage that indicates the share of net margin available to cover fixed costs.
Calculating the TMCV is an essential step for all companies wishing to optimize their financial management. This ratio allows you to:
Assess product profitability: The TMCV shows whether sales cover not only variable costs but also fixed costs. A high TMCV indicates better profitability.
To assist with pricing: It allows sales prices to be adjusted based on variable costs and the desired margin.
Optimize production: By identifying products with low TMCV, companies can adjust their production or reduce variable costs (source: Petite-Entreprise.net).
In short, knowing your TMCV helps you better manage your sales, adjust your prices, and maximize your profitability.
Let's take a simple example to illustrate how to calculate the TMCV:
Revenue: €100,000
Total variable cost: €40,000
Variable cost margin = €100,000 - €40,000 = €60,000
TMCV = (60,000 / 100,000) × 100 = 60%
In this example, the TMCV is 60%. This means that 60% of revenue is used to cover fixed costs and potentially generate profit.
The TMCV is also essential for calculating the break-even point, which corresponds to the level of revenue needed to cover all costs (fixed and variable). The higher the TMCV, the faster the break-even point is reached.
The break-even point is calculated as follows:
So, if your annual fixed costs are €50,000 and your TMCV is 60%, you will need to generate a minimum turnover of €83,333 to break even (source: Eurecia).
In parallel with calculating the TMCV, it is crucial for a company to manage its human resources and payroll processes effectively. Poor management can quickly affect the company's profitability.
This is where QuarksUp's Hello Payroll solution comes in. Our HRIS software allows you to automate payroll and HR process management, simplify the tracking of hours worked and absences, while remaining compliant with legal requirements. By lightening these administrative tasks, you can focus on improving your margins and financial performance.
TMCV is not only a profitability indicator, it also helps guide strategic business decisions. Here are the main advantages:
TMCV calculation is a powerful tool for any company seeking to maximize profitability and optimize financial processes. Combined with management software such as Hello Payroll from QuarksUp, you can not only improve your company's performance, but also streamline your HR and payroll processes for more efficient and profitable management.
