Business & Sales

What Is Contribution Margin?

Contribution margin is the selling price of a product minus its variable costs. It shows how much each unit sold contributes toward covering fixed costs and, after those are covered, toward profit. It is the key figure in break-even analysis.

Formula

Contribution margin per unit = price − variable cost per unit. Contribution margin ratio = contribution margin ÷ price.

Example

A price of 50 and a variable cost of 30 give a contribution margin of 20 per unit, or a 40% ratio.

Contribution vs. Gross Margin

Gross margin subtracts cost of goods sold, which can include some fixed production costs; contribution margin subtracts only costs that vary with volume.

🧮 Calculate It Yourself

Put Contribution Margin into practice with these free calculators — no sign-up, nothing stored.

📊 Break-Even Point Calculator How many units do you need to sell before your side business profits? Calculate → 🏷️ Markup & Margin Calculator Find your selling price, or check your real profit margin. Calculate →

🔗 Related Terms

Break-Even Point Profit Margin Gross Profit

More Business & Sales Terms

📖 Browse all glossary terms or explore all free calculators.

Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.