Contribution Margin Calculator
- Variable cost
- Contribution margin
60.0% of each sales dollar goes toward fixed costs and profit.
How the contribution margin calculation works
Contribution margin = price − variable cost
A $40 product with $16 of variable cost contributes $24 per unit.
The ratio divides that by the price
$24 ÷ $40 = 60%. Sixty cents of every sales dollar is left for fixed costs and profit.
Multiply by units for the total
500 units × $24 = $12,000 total contribution margin.
Subtract fixed costs for operating profit
$12,000 − $7,000 of fixed costs leaves $5,000 operating profit.
Worked example. You sell 500 units at $40 with a $16 variable cost each. Contribution margin is $24 per unit (60%), $12,000 in total. After $7,000 of fixed costs, operating profit is $5,000.
Contribution Margin FAQ
What is contribution margin?
The money left from each sale after the costs that rise with every unit sold. It pays your fixed costs first, and what remains after them is operating profit.
What is the contribution margin formula?
Contribution margin = selling price − variable cost per unit. Total contribution margin is that figure times units sold, or total sales minus total variable costs.
How do I calculate the contribution margin ratio?
Contribution margin ratio = contribution margin ÷ price, or total contribution ÷ total sales. $24 ÷ $40 = 60%, and $12,000 ÷ $20,000 gives the same 60%.
How is contribution margin different from gross margin?
Gross margin subtracts cost of goods sold, which can include fixed production costs such as factory rent. Contribution margin subtracts only costs that change with each unit sold, including selling costs like shipping, payment fees and sales commissions that gross margin leaves out. Use the profit margin calculator for gross and net margin.
What is a contribution margin income statement?
An income statement that lists sales, then variable costs, then total contribution margin, then fixed costs and operating profit. The breakdown under the result is one: $20,000 sales − $8,000 variable costs = $12,000 contribution, − $7,000 fixed costs = $5,000 operating profit.
How does contribution margin relate to break-even?
Break-even is the point where total contribution equals fixed costs. Fixed costs ÷ contribution per unit gives break-even units: $7,000 ÷ $24 = 291.7, so 292 units. The break-even calculator works this out in units and dollars, with a margin of safety.
What is a good contribution margin?
Higher is better, since more of each sale covers fixed costs. What counts as good depends on how high your fixed costs are and how many units you can sell.
Can contribution margin be negative?
Yes, when the variable cost per unit is higher than the price. Then each sale increases the loss, and the product needs a price rise or a cheaper way to make it.