Cheatsheet Manus

The Contribution Profit (cp) framework (€5.00) is the better answer for retail management and decision-making.

While the first answer (€2.58) satisfies a mathematical percentage (the 2% net margin), it is strategically flawed in a real-world store environment. 

Here is why the Contribution Profit approach is superior:

1. The "Shelf Space" Reality (Opportunity Cost)

In a store, your most constrained resource is not usually "percentage margin," but physical space (shelf meters or floor area).

If you sell the non-sustainable product at €2.58, you earn €1.58 in contribution.

If you sell the sustainable product at €8.00, you earn €4.00 in contribution.

The Result: By choosing the €2.58 price, you are losing €2.42 in profit for every single unit that occupies that space. This is a massive Opportunity Cost.

2. Fixed Costs vs. Variable Percentages

Operating expenses (SG&A) like rent, electricity, and staff salaries are largely fixed in the short term. They don't care about your percentages; they care about absolute Euros.

The €5.00 price ensures that the non-sustainable product carries its "fair share" of the store's overhead, just like the sustainable one does.

At €2.58, the product is "profitable" on paper (2%), but it contributes so little absolute cash that you would need to sell 2.5 times more volume just to match the cash contribution of the sustainable product.

3. Avoiding the "Race to the Bottom"

Using only percentage margins often leads retailers to underprice low-cost items. If you price at €2.58, you are essentially subsidizing the low-cost product with the profit from higher-value items. The €5.00 price reflects the true value of the transaction and the service your store provides.

Summary Comparison

Net Profit Model (€2.58): Focuses on financial ratios and top-down averages.

Contribution Model (€5.00): Focuses on cash flow, space productivity, and bottom-up opportunity cost.

Verdict: Use €5.00. It treats your store as a collection of profit-generating assets (SKUs) and ensures that every unit sold justifies its place on your shelf.

| Name                | Institution                     | Key Contribution                                                                                                                                                                |

| :------------------ | :------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |

| **Paul Farris**     | University of Virginia (Darden) | A global authority on marketing metrics. He pioneered research into how retail space productivity should be measured beyond simple gross margins.                               |

| **Norm Borin**      | Cal Poly                        | Co-authored seminal studies with Farris comparing **DPP** with other SKU productivity measures, proving that absolute contribution is a better predictor of store health.       |

| **Tensie Whelan**   | NYU Stern                       | Director of the Center for Sustainable Business. Her team developed the **Sustainable Market Share Index**, which tracks the superior profit potential of sustainable products. |

| **Bryan Bollinger** | NYU Stern                       | Researches the "Profit Potential and Availability" of sustainable products, specifically how retailers can optimize pricing to balance premiums with volume.                    |