Contribution Margin

Business Finance

Contribution Margin is Revenue minus Variable Costs — the dollars from each sale that contribute to covering fixed costs and generating profit. A product selling for $50 with $20 variable cost has $30 contribution margin (60% contribution margin percentage). Multiply by unit volume, then subtract fixed costs to derive operating profit. Critical for pricing decisions, product mix optimization, and break-even analysis. Contribution margin × units sold = total dollars to cover fixed costs and contribute to profit. Higher contribution margins enable lower break-even points. Compare contribution margins across products to identify highest-leverage offerings; sometimes low-revenue products have higher margins than headline products.