💰 Contribution Margin Calculator
Calculate contribution margin and CM ratio
Price at which you sell each unit
Variable costs per unit (materials, labor, etc.)
How to Use This Calculator
Enter Selling Price
Input the price at which you sell each unit of your product or service.
Enter Variable Cost
Input the variable cost per unit - costs that change with each unit produced (materials, direct labor, shipping, etc.).
Calculate
Click calculate to see contribution margin, CM ratio, and other profitability metrics.
Review Results
Use the results for pricing decisions, break-even analysis, and understanding profitability per unit.
Formula
Contribution Margin:
Contribution Margin = Selling Price - Variable Cost per Unit
Contribution Margin Ratio:
CM Ratio = (Contribution Margin / Selling Price) × 100%
Variable Cost Ratio:
Variable Cost Ratio = (Variable Cost / Selling Price) × 100%
Example 1: Product with High Margin
Selling Price: $50, Variable Cost: $15
Contribution Margin: $50 - $15 = $35 per unit
CM Ratio: ($35 / $50) × 100% = 70%
Variable Cost Ratio: ($15 / $50) × 100% = 30%
✅ High margin - 70% of revenue available for fixed costs
Example 2: Product with Low Margin
Selling Price: $25, Variable Cost: $20
Contribution Margin: $25 - $20 = $5 per unit
CM Ratio: ($5 / $25) × 100% = 20%
Variable Cost Ratio: ($20 / $25) × 100% = 80%
⚠️ Low margin - only 20% available for fixed costs
About Contribution Margin Calculator
The Contribution Margin Calculator helps businesses understand how much each unit sold contributes to covering fixed costs and generating profit. Contribution margin is a critical metric for pricing decisions, break-even analysis, and profitability management. It shows the amount available from each sale to cover fixed costs before profit is generated.
When to Use This Calculator
- Pricing Decisions: Determine if your pricing provides adequate margin
- Break-Even Analysis: Calculate contribution margin needed for break-even calculations
- Profitability Analysis: Understand how much each unit contributes to profit
- Product Mix Decisions: Compare contribution margins across different products
- Cost Management: See how variable cost changes affect margin
- Sales Planning: Determine how many units needed to cover fixed costs
Why Use Our Calculator?
- ✅ Quick Calculation: Instantly calculate contribution margin and CM ratio
- ✅ Key Metrics: Shows both dollar amount and percentage (CM ratio)
- ✅ Profitability Insights: Understand how much each unit contributes to covering fixed costs
- ✅ Clear Results: Easy-to-understand display of contribution margin
- ✅ Free Tool: No cost for essential pricing analysis
Common Applications
- Product Pricing: Set prices that ensure adequate contribution margin
- Break-Even Analysis: Use contribution margin to calculate break-even point
- Product Strategy: Focus on products with higher contribution margins
- Cost Reduction: See how reducing variable costs improves margin
Tips for Best Results
- Accurate Variable Costs: Include all variable costs (materials, direct labor, commissions, shipping)
- Regular Updates: Recalculate as costs or prices change
- Compare Products: Calculate contribution margin for all products to compare profitability
- Consider Volume: Higher volume products may have lower margins but higher total contribution
- Target Margins: Aim for contribution margins that cover fixed costs and provide profit
Frequently Asked Questions
What is contribution margin?
Contribution margin is the amount of revenue remaining after variable costs are deducted. This amount contributes to covering fixed costs and, once fixed costs are covered, becomes profit.
What's a good contribution margin?
A good contribution margin depends on your industry and fixed costs. Generally, 40-60% CM ratio is good, but service businesses often have much higher ratios (70-90%). The key is that it covers fixed costs and provides profit.
How is contribution margin different from gross profit?
Contribution margin is revenue minus variable costs. Gross profit is revenue minus cost of goods sold (which may include some fixed costs in absorption costing). Contribution margin focuses only on variable costs.
What if my contribution margin is negative?
A negative contribution margin means variable costs exceed selling price. You're losing money on each sale. You must either increase price or reduce variable costs to be profitable.
How do I use contribution margin for break-even?
Break-even units = Fixed Costs / Contribution Margin. Once you know contribution margin per unit, divide your fixed costs by it to find how many units you need to sell to break even.
Should I focus on high CM ratio or high CM dollars?
Both matter. High CM ratio is good for profitability, but high CM dollars (total contribution) is what covers fixed costs. A product with lower CM ratio but higher volume might generate more total contribution. Consider both metrics.