Contribution Margin Calculator

Contribution margin calculator for revenue, variable costs, and per-unit analysis

Contribution margin is one of the most practical numbers in business. It tells you how much money is left after variable costs are paid. That remaining amount is what you have available to cover fixed costs like rent, salaries, insurance, software, and loan repayments. Once fixed costs are covered, anything left becomes profit.

This calculator gives you two common ways to work it out. If you already have totals for a period, use revenue and total variable costs. If you sell a product or service with a clear unit price, use the per-unit method with selling price per unit, variable cost per unit, and units sold. Both methods produce the same core metrics, just from different inputs.

The first output is the contribution margin amount, shown as a currency value. A higher contribution margin generally means you have more room to absorb fixed costs, handle volatility, and invest into growth. The second output is the contribution margin ratio, sometimes called contribution margin percentage. This ratio tells you what portion of every currency unit of revenue is available to cover fixed costs and profit. For example, a 40% contribution margin ratio means that for every 100 in revenue, 40 is available to cover fixed costs and profit after variable costs.

Use this calculator when you are pricing, planning promotions, comparing product lines, or stress testing a business model. A discount can raise volume but crush contribution margin per unit. A cost increase can quietly destroy profitability even if revenue stays the same. Contribution margin makes those trade-offs visible quickly because it focuses on what actually scales with sales.

If your contribution margin ratio is low, the business is sensitive to small changes. A small drop in price or small rise in variable costs can remove the remaining buffer. If your ratio is high, you typically have more pricing flexibility and can scale more comfortably, but you still need to ensure fixed costs are controlled. Contribution margin is not the same as net profit. It is the step before fixed costs. That is why it is so useful for decision making.

Assumptions and how to use this calculator

• Revenue is the total selling value for the period, before subtracting any costs.
• Variable costs are costs that rise or fall with sales volume, such as materials, packaging, sales commissions, and payment fees.
• Fixed costs are not included in the calculation. Use the result to see what is available to cover fixed costs and profit.
• If total variable costs are greater than revenue, contribution margin becomes negative, which usually indicates pricing or cost allocation problems.
• Per-unit results assume the same selling price and variable cost per unit across the units sold.

Common questions

What is the contribution margin formula?

Contribution margin equals revenue minus variable costs. The contribution margin ratio equals contribution margin divided by revenue, expressed as a percentage. In per-unit form, contribution margin per unit equals selling price per unit minus variable cost per unit.

What counts as a variable cost?

Variable costs are costs that change with sales volume. Common examples include raw materials, packaging, freight tied to each sale, merchant fees, and sales commissions. Some costs are mixed, meaning part is fixed and part changes with volume. If you are unsure, treat the portion that scales with sales as variable.

How is contribution margin different from gross margin?

Gross margin usually uses cost of goods sold and is common in retail and manufacturing. Contribution margin is broader because it can include any variable costs, not only direct product costs. Many businesses use contribution margin for pricing and product decisions because it reflects what truly scales with sales.

What is a good contribution margin ratio?

There is no universal target because it depends on the industry, pricing power, and fixed cost structure. Higher is generally better, but only if demand holds. A practical approach is to compare products within your business and track the trend over time. If the ratio is falling, costs or discounting are eating the buffer.

Can contribution margin be used for break-even analysis?

Yes. Break-even in revenue terms is often calculated as fixed costs divided by the contribution margin ratio. Break-even in units is often calculated as fixed costs divided by contribution margin per unit. This calculator provides the margin metrics you need for those break-even calculations.