Free tool · Money & pricing
Contribution margin calculator
Contribution margin is what each sale leaves after its variable costs — the money that pays fixed costs and then becomes profit. Enter your price, variable cost per unit, units sold and fixed costs to see contribution margin per unit, the contribution margin ratio, total contribution and operating profit.
Contribution margin per unit
$27.00
60.0% of every sale goes to fixed costs and profit.
- Contribution margin ratio
- 60.0%
- Total contribution margin
- $16,200
- Fixed costs
- −$9,000
- Operating profit
- $7,200
- Break-even units
- 334
Formulas
- Contribution margin per unit = Price − Variable cost per unit
- Contribution margin ratio = Contribution margin per unit ÷ Price × 100
- Total contribution margin = Contribution margin per unit × Units
- Operating profit = Total contribution margin − Fixed costs
- Break-even units = Fixed costs ÷ Contribution margin per unit
Worked example: a candle line
A candle sells for $28. Wax, wick, jar, label, box and the marketplace fee add up to $9 per candle, so contribution margin is $19 per unit and the ratio is 67.9%.
At 600 candles a month, total contribution is $11,400. Studio rent, software, insurance and a part-time packer are $7,000 of fixed costs, leaving $4,400 of operating profit. Break-even is 369 candles a month.
Contribution margin vs gross margin
Gross margin subtracts cost of goods sold, which under standard accounting can include some fixed production costs such as factory rent. Contribution margin subtracts only costs that change with each unit — including selling costs like payment fees and commissions that sit outside COGS.
That makes contribution margin the better number for decisions such as: should we take a discounted bulk order, which product should we promote, and how many units do we need to sell to cover the rent?
Using the ratio
The contribution margin ratio tells you how much of each extra dollar of sales drops toward fixed costs and profit. With a 67.9% ratio, an extra $1,000 of candle sales adds about $679 of profit once fixed costs are already covered.
Compare ratios across products. A low-ratio bestseller can keep the lights on while a high-ratio product is the one worth spending ad money on.
Frequently asked questions
How do you calculate contribution margin?
Subtract variable cost per unit from the selling price. For totals, multiply by units sold, or subtract total variable costs from total revenue.
What is a good contribution margin ratio?
It depends on the business model. Higher is better because more of each sale covers fixed costs, but what matters is whether total contribution comfortably exceeds your fixed costs.
What is the difference between contribution margin and profit?
Contribution margin is before fixed costs; operating profit is after them. A product can have a healthy contribution margin and the business can still lose money if volume is too low to cover fixed costs.
Which costs are variable?
Costs that rise with each unit sold: materials, packaging, shipping you pay, payment processing, sales commissions and per-unit labor. Rent, salaries and subscriptions are usually fixed.