Contribution margin shows how much each sale contributes toward fixed costs and profit after variable expenses. It is essential for pricing, promotions, and break-even analysis.
How to use this calculator
- Enter the selling price for one unit.
- Enter variable cost per unit (materials, direct labor, commissions, shipping).
- Enter expected or actual units sold in the period.
- Review per-unit margin, margin ratio, and total contribution.
- Read the decision support for pricing and break-even implications.
Formula
Contribution margin per unit = Selling price − Variable cost per unit. Contribution margin ratio (%) = (Contribution margin ÷ Selling price) × 100. Total contribution = Contribution margin per unit × Units sold.
Example
At $45 selling price, $18 variable cost, and 500 units sold, contribution margin is $27 per unit (60% ratio) and $13,500 total contribution toward fixed costs.
Frequently asked questions
What costs are included in variable cost?
Include costs that change with each unit sold: materials, packaging, direct labor, sales commissions, and per-unit shipping. Exclude rent, salaries, and marketing that stay fixed.
How does contribution margin relate to break-even?
Break-even units = Fixed costs ÷ Contribution margin per unit. Higher contribution margin means fewer units needed to cover overhead.
What is a good contribution margin ratio?
It varies by industry. Ratios below 20% are tight; 20–40% is workable for many businesses; above 40% provides strong cushion for fixed costs.
Can contribution margin be negative?
Yes, when variable cost exceeds price. Each sale deepens the loss before fixed costs — pricing or costs must change immediately.