Which of my products or services leaves the most money per scarce hour?
Subtract each offer's variable costs from its sales, then divide by the hours of your scarcest resource it uses. Two services each selling €2,400 leave €1,800 and €1,500; per technician hour that is €60 against €30. A lower figure is a trade-off to examine, not an instruction to close the line.
Two services can bring in the same sales while leaving different amounts of money and using different amounts of time. This example shows why another attractive order may not fit, and why that does not automatically mean closing a service.
Find the resource that actually limits the work
When one resource is in short supply, contribution per unit of that resource helps compare its use. Contribution means revenue minus variable costs. ACCA's limiting-factor explanation makes the constraint central: revenue per job or contribution per job alone can miss how much scarce capacity each job needs.
In the studio example, the same technician does delivery and coordination. Both consume the stated 80 hours. If a separate machine were the real bottleneck, technician hours would not settle that comparison. Check the actual constraint, demand and existing commitments before using a ratio to choose future work.
The repair studio has no ten-hour gap
In this fictional four-week period, a repair studio earns €2,400 from standard repairs and €2,400 from custom restoration. Repairs use €600 of materials and external services, leaving €1,800. Restoration uses €900, leaving €1,500. These are all the variable costs in this simplified case; salaries, rent and other fixed costs stay unchanged.
The same technician spends 24 hours delivering repairs and six coordinating them: 30 hours altogether. Restoration needs 30 delivery hours and 20 coordination hours: 50 altogether. Repairs leave €1,800 ÷ 30 = €60 per counted technician hour. Restoration leaves €1,500 ÷ 50 = €30. Neither number is the technician's wage or the business's final profit.
The technician has 80 hours allocated to these two lines during the same four weeks. The existing work uses all of them: 30 + 50 = 80. An extra restoration job needs ten more hours in that period. Its attractive price does not create the missing hours.
The next decision is to check the current promises and what can really change: a later slot, a changed scope or actual additional capacity. None is assumed available. The lesson is that equal sales do not mean equal use of limited time. It is not that restoration must close or that future repair demand is guaranteed.
- All sales, costs and hours are hypothetical and refer to the same four-week period. Amounts exclude tax.
- The listed materials and external services are all variable costs in this case. Unchanged salaries, rent and other fixed costs remain to be paid.
- One technician performs both delivery and coordination, with 80 hours allocated to these lines. Every hour is counted once.
- Revenue does not establish when cash was collected. The example supplies no extra demand, overtime agreement or ability to cancel promised work.
| Measure | Standard repairs | Custom restoration |
|---|---|---|
| Revenue | €2,400 | €2,400 |
| Variable costs in this case | €600 | €900 |
| Remainder before unchanged fixed costs | €1,800 | €1,500 |
| Delivery + coordination hours | 24 + 6 = 30 hours | 30 + 20 = 50 hours |
| Remainder per counted technician hour | €60 | €30 |
Try it with your own numbers
Without VAT or sales tax.
Costs that come with this work, such as materials and external services.
Delivery and coordination time of the resource that limits the work, each hour counted once.
The same period as the first offer.
Costs that come with this work, such as materials and external services.
The same resource as for the first offer, each hour counted once.
The time actually allocated to these two offers.
The job you are thinking of accepting.
Your result
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A lower ratio is not an instruction to close
Stopping a line changes some costs and leaves others in place. Compare the revenue you would lose with the costs that would actually stop. If you start from lost contribution, its variable costs have already been deducted. ACCA's closure example shows why a share of common fixed costs assigned to a line is not the same as a saving from closing it.
In this fictional studio, restoration still leaves €1,500 before fixed costs. Removing it does not make the rent disappear. Nor do we know that enough extra repair orders would fill the released time. The table identifies a trade-off worth examining; it does not establish a whole-business decision.
Count each job and each hour once
Use separate rows for work that does not overlap. A custom restoration sold online is still one restoration job; counting it again as an online-sales line would duplicate its revenue and hours. Products, earning methods, customer groups and sales channels are different ways to describe the same activity.
Include coordination that genuinely consumes the constrained resource. If two people attend a one-hour handover, that uses two person-hours, but it does not mean a single person's calendar lost two hours. Keep each person's load visible where availability differs. Mark estimates rather than making a precise-looking ratio from unknown effort.
Common misconceptions
- Equal sales mean the two services are equally useful.
- The variable costs and capacity consumed differ. A useful comparison needs the resource that is actually scarce.
- Stop the service with the lower hourly result.
- Check what would be lost, what costs would really stop, which promises remain and whether replacement demand exists. The ratio alone supplies none of those answers.
- An extra order fits because its price covers the materials.
- Covering materials does not create time. The example already uses all 80 allocated hours before the extra ten-hour job.
Check one extra job against real remaining capacity
Compare two actual offers over one period. Record their variable costs and delivery and coordination time without overlap, marking estimates. Identify the resource that is genuinely unavailable. Then check one proposed job against that resource and existing promises before accepting it. If you are considering stopping a line, separately establish the costs that would actually stop and the demand that could replace it.
Sources
- ACCA: Performance Management examiner report, March 2019 (opens in a new tab)Pages 10–11 explain contribution per constrained resource, demand and committed orders under a single limiting factor. This is not a universal portfolio-ranking rule.
- ACCA: Relevant costs (opens in a new tab)Example 6 distinguishes revenue lost and costs actually saved in a closure decision from allocated common fixed costs.