Pricing & margin
Contribution Margin
Formula reviewed by Tahir Asif, CMA
The amount left from each sale after variable costs, available to cover fixed costs and profit.
Contribution margin is what's left of a sale's revenue after subtracting only the variable costs tied to producing or delivering that unit — it doesn't yet account for fixed costs like rent or salaries that don't change with volume.
It can be expressed as a dollar amount per unit or as a ratio (contribution margin ÷ price). The ratio is what determines how quickly a business covers its fixed costs as volume grows: a higher ratio means fewer units needed to reach break-even.
Contribution margin
Price − Variable cost per unit
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