Contribution margin calculator
Contribution margin is a profitability metric, calculated as (Revenue − Variable costs) ÷ Revenue. Strictly the ratio form — the amount is Revenue − Variable costs. Variable-cost classification is a judgment; state it.
- Formula
- (Revenue − Variable costs) ÷ Revenue
Contribution margin
Contribution margin = (Revenue − Variable costs) ÷ Revenue$
$
Costs that scale with each sale: COGS, payment fees, commissions, usage-based hosting.
Contribution margin
65.0%
How it’s worked out
- 1Contribution$6,000,000 − $2,100,000$3,900,000
- 2Contribution ÷ revenue$3,900,000 ÷ $6,000,00065.0%
Runs in your browser; nothing you type is sent anywhere. Amounts in US dollars.
How to read it
Contribution margin is what each sale contributes toward fixed costs and profit once the costs that come with that sale are covered.
It is the right margin for pricing and break-even decisions, because fixed costs do not change with one more sale.
Common mistakes
- Treating fixed salaries as variable costs.
- Leaving out payment processing and commissions, which do scale with each sale.
Questions
- How is contribution margin different from gross margin?
- Gross margin deducts cost of revenue as the income statement defines it. Contribution margin deducts every cost that varies with volume, which can include sales commissions and payment fees that sit in operating expenses.
- How is it used for break-even?
- Fixed costs ÷ contribution margin ratio gives the revenue needed to break even.
Read it with
The metrics read alongside this one, and the terms it is confused with.
- Operating margin calculatorOperating margin is a profitability metric, calculated as Operating income ÷ Revenue.Calculator
- Net margin calculatorNet margin is a profitability metric, calculated as Net income ÷ Revenue.Calculator
- Customer lifetime value calculatorLTV is a unit-economics metric, calculated as (ARPA × Gross margin) ÷ Revenue churn rate, both in the same period unit.Calculator
- Contribution marginContribution margin is a profitability metric, calculated as (Revenue − Variable costs) ÷ Revenue.Term
The formula is the one the glossary states, and the arithmetic is unit-tested. A ratio with nothing to divide by shows a dash — undefined is not zero. General information, not financial advice.