Segment margin
Segment margin is a business unit's contribution margin after deducting its traceable fixed costs but before any allocation of common fixed costs; it is the key figure for judging whether a segment is self-sustaining.
FrameworkSegment reporting
See it move
A segment generating €400,000 in revenue first absorbs €240,000 of variable costs, then €100,000 of traceable fixed costs — costs that exist specifically because this segment operates. What remains, €60,000, is the segment margin: the amount it contributes toward shared overhead once its own costs are covered. Common fixed costs are deliberately left out, because they would continue even if the segment closed.
The formula
Variables
- revenue generated by the segment during the period (€)
- variable costs directly attributable to the segment (€)
- traceable fixed costs that exist specifically to support the segment and would be eliminated if the segment closed (€)
Common fixed costs are excluded because they persist regardless of whether the segment is closed; including them would distort the viability signal. A positive segment margin means the segment covers all its own costs and contributes to shared overhead.
Check yourself
A company's Sports division reports: revenue €500,000; variable costs €300,000; traceable fixed costs €80,000; allocated share of head-office common fixed costs €60,000. What is the Sports division's segment margin?