Measure how much each dollar of sales contributes toward covering fixed costs and generating profit.
Unit Economics
Variable costs vary directly with production volume (e.g., raw materials, direct labor).
Profitability Analysis
Contribution Margin$40.00Available to cover fixed costs
Contribution Margin Ratio40.00%
Revenue Distribution
About this calculator
Overview
Measure how much each dollar of sales contributes toward covering fixed costs and generating profit.
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Pro Tips
What is Contribution Margin?: Contribution margin is the amount remaining from sales revenue after all variable costs (like labor and materials) have been deducted. It 'contributes' to paying off fixed costs.
Why is it different from Gross Margin?: Gross margin includes fixed production costs (in COGS), while contribution margin only looks at variable costs. CM is more useful for determining the impact of changing sales volume.
What is the CM Ratio?: The contribution margin ratio is the percentage of each sales dollar that is available to cover fixed costs. CM Ratio = Contribution Margin / Revenue.
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Fun Facts
"If your contribution margin is zero or negative, every sale you make actually loses the company money."
"The point where total contribution margin equals total fixed costs is known as the 'Break-Even Point'."
"High contribution margin businesses (like software) can grow very quickly because once fixed costs are paid, nearly every dollar of revenue becomes profit."
