ABSTRACT
Contribution pricing is concerned with covering variable costs to ensure a
positive contribution results. It is particularly appropriate with perishable
stock such as rooms. If a room is not sold for a particular night and the night
in question elapses, that particular room night can never be sold in the
future. The contribution pricing philosophy holds that it is better to receive
some contribution to profit rather than no contribution, before an unsold
room night elapses. As a result, contribution pricing can be seen as a ‘‘last
minute’’ mentality that can come into play as the time for a room night
elapsing approaches. Viewed in this way, contribution pricing represents an
attempt to secure a contribution from stock that is about to be sacrificed
(either because of the passage of time or, in the case of food, if the stock is
becoming too old to sell).
