Profit Formula (Fixed & Variable Costs)
Contribution margin alone is too simple — operating a business requires infrastructure, which brings fixed costs. Projected revenues from anticipated volumes must cover both fixed and variable costs.
The formula
P = q(R − VC) − FC
Profit at scale, accounting for fixed costs of infrastructure plus per-unit variable costs.
What goes into it
- Number of units sold (q)
- Price per unit (R)
- Variable cost per unit (VC)
- Fixed costs (FC)
Worked example
| Units sold (q) | 1,000 |
| Price / unit (R) | $100 |
| Variable cost / unit (VC) | $40 |
| Fixed costs (FC) | $25,000 |
| Profit (P) | $35,000 |