Our US contribution margin structure is set mostly top down. For any given future period, we estimate revenue, and decide what we want to spend, and how much margin we want in that period. Competitive pressures in bidding for content would lead us to have slightly less content than we would otherwise, rather than overspending. The same is true for our marketing budget. The output variable is membership growth that those spending choices influence.
This is what Netflix tells their investors in the long-term view (the wording has slightly changed just a few weeks ago but this is how it read for a long time until then).
With this, you know they are using the contribution margin metric in one of the most important business decisions: investing in content.
That is why we are covering the topic of contribution margins: it is one of the most important metrics and decision making tools for many companies like Netflix (I have an example from Lyft’s recent IPO filing at the end).
It is also a crucial tool in the break-even analysis (i.e. finding out when you start making money).
Find out more about one of the most crucial business metrics for many companies.
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