Contribution Margin Calculator
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Contribution margin is the amount each unit of sales contributes toward covering fixed costs and then generating profit. It equals selling price minus variable cost per unit. The contribution margin ratio expresses this as a percentage of revenue.
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Tip: Use contribution margin to decide which products to prioritise. The product with the highest CM per unit of the limiting resource (machine hours, shelf space) should be produced first.
- 1Identify selling price per unit and all variable costs per unit (materials, direct labour, commissions)
- 2Contribution margin per unit = Price − Variable cost per unit
- 3Contribution margin ratio = CM per unit / Price × 100%
- 4Total contribution = CM per unit × units sold
Price $80 · Variable cost $50=CM = $30 (37.5%)Each unit contributes $30 toward fixed costs and profit
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Fun Fact
Companies with high contribution margins (e.g. software) can scale rapidly because each additional sale adds almost pure profit once fixed costs are covered.
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