Pricing & Profit
Contribution Margin Calculator
Calculate contribution margin and contribution margin ratio from revenue and variable costs.
See how much revenue is left after variable costs to cover fixed costs and profit.
Enter your values
Sales revenue for the period, product, or segment you are analysing.
Costs that change with sales volume for the same scope.
Results
Contribution margin
—
Enter revenue and variable costs.
Contribution margin ratio
—
Contribution as a percentage of revenue.
Revenue
—
The revenue figure entered.
Variable costs
—
The variable costs entered.
Results are estimates based on the values entered and are provided for general planning.
Method
How to calculate contribution margin
Contribution margin isolates the money a sale contributes once the costs caused by that sale are removed. Whatever remains is what the business has available to pay fixed costs; anything above the fixed-cost total becomes operating profit.
Formula
Contribution margin = Revenue − Variable costs Contribution margin ratio = Contribution margin ÷ Revenue × 100
Assumptions
- Revenue and variable costs cover the same period, product, or segment.
- Only costs that move with sales volume are entered as variable costs.
- Fixed costs such as rent, salaried payroll, and software are deliberately excluded.
The ratio is calculated at full precision before display. Currency displays two decimals; the ratio displays two decimals.
How to interpret the result
A positive contribution margin means each additional sale helps cover fixed costs. A negative contribution margin means more sales increase the loss, because the variable costs of serving the sale exceed the revenue it brings in. The ratio makes contribution comparable across products of different sizes.
Classifying costs by behaviour
A cost is variable when it rises and falls with volume: materials, per-unit freight, payment processing, packaging, per-order fulfillment labour, sales commissions. A cost is fixed when it does not change within the period: rent, salaries, subscriptions, insurance.
Some costs are mixed. A warehouse with a base rent plus per-pallet handling charges has both. Split them where you can, and document the split so results are comparable between periods.
Using contribution margin in decisions
Contribution margin is the right measure when you are deciding whether to take an additional order, keep a product line, or run a promotion, because those decisions change volume but not fixed costs in the short term.
It is not the right measure for judging whether the business as a whole is profitable — that requires fixed costs, overhead, interest, and tax as well.
Contribution margin next to related measures
These measures use different cost sets and answer different questions.
| Measure | Formula | What it shows |
|---|---|---|
| Contribution margin | Revenue − Variable costs | What a sale contributes toward fixed costs. |
| Gross profit | Revenue − Cost of goods sold | Revenue after accounted direct product costs. |
| Net profit | Revenue − All expenses | What remains after fixed costs, interest, and tax. |
Frequently asked questions
Keep calculating
Related calculators
Feed the contribution figure into break-even analysis to find the sales volume that covers fixed costs, verify per-unit profitability with the profit margin calculator, or reprice with the selling price calculator when contribution is too thin.
Break-Even Calculator
Estimate the units and revenue needed to cover fixed costs.
Open calculator Pricing & ProfitProfit Margin Calculator
Calculate profit, margin, and markup from cost and selling price.
Open calculator Pricing & ProfitSelling Price Calculator
Calculate the selling price needed to reach a target profit margin.
Open calculator