What is Contribution margin?

Contribution margin is what each sale adds toward fixed costs and profit: price − variable cost per unit.

Example

A $50 product with $30 of variable costs contributes $20 per sale.

Why it matters

Raising contribution per unit lowers your break-even point faster than almost anything else.

Calculate it: Break-Even Calculator

Units and revenue to cover your costs

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Flashcard

Question

What is contribution margin?

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Answer

Contribution margin is what each sale adds toward fixed costs and profit: price − variable cost per unit.

Related terms

Break-even point

The break-even point is the number of units (or revenue) where total contribution covers fixed costs: fixed costs ÷ (price − variable cost per unit).