Contribution Margin Formula
Contribution margin is what each sale leaves over to cover fixed costs and profit, after subtracting the variable cost of making that unit. It is the single most useful number for pricing, break-even, and product-mix decisions.
The formula
The portion of sales revenue that exceeds variable costs. It contributes to covering fixed costs and profit.
What goes into it
- Revenue
- Cost of Goods Sold (COGS)
Worked example
| Revenue (R) | $100,000 |
| COGS (C) | $40,000 |
| Contribution margin | $60,000 |
Unit vs. total contribution margin
Unit contribution margin = price per unit − variable cost per unit. Total contribution margin = unit contribution margin × units sold. The contribution margin ratio expresses it as a percentage of price, which is handy when you sell many products at different prices.
When to use it
Use the unit contribution margin to find your break-even quantity (fixed costs ÷ unit contribution margin), to compare which products earn their keep, and to test whether a price change or a cost cut actually improves the bottom line.
Calculate it live
Register free to use the live calculator and the full formula directory.
Register / Sign in →