Contribution Margin Calculator
Contribution margin measures how much revenue is left over after variable costs to cover fixed costs and generate profit. Every unit sold that has a positive contribution margin is helping to pay your rent, utilities, and salaries. Once total contribution margin exceeds total fixed costs, you have reached break-even and every additional unit sold drops directly to operating profit. This calculator gives you both the per-unit contribution margin and the total contribution margin for a given sales volume, along with the contribution margin ratio.
Contribution margin formula
Contribution Margin Per Unit = Price - Variable Cost Per Unit
Contribution Margin Ratio = (Price - Variable Cost) / Price * 100
Total Contribution Margin = Contribution Margin Per Unit * Units Sold
Example: Price $150, Variable Cost $90, Units Sold 1,000. CM per unit = $60. CM Ratio = 40.00%. Total CM = $60,000.
Using contribution margin in decision-making
- If total contribution margin exceeds fixed costs, the business is profitable at the operating level.
- Use contribution margin to evaluate special orders: accept any order where the price exceeds variable cost and spare capacity exists.
- Discontinue a product only if its contribution margin is negative (unless it blocks a more profitable product).
- Rank products by contribution margin per unit of constrained resource to maximise profit under capacity limits.
Frequently asked questions
What is contribution margin?
Contribution margin is the selling price per unit minus the variable cost per unit. It represents the amount each unit sold contributes toward covering fixed costs and generating profit. A positive contribution margin means each sale helps pay fixed costs.
What is the contribution margin ratio?
The contribution margin ratio is the contribution margin per unit divided by the selling price, expressed as a percentage. It shows how many cents of each revenue dollar go toward fixed costs and profit.
How is total contribution margin calculated?
Total contribution margin is contribution margin per unit multiplied by the number of units sold. Subtract total fixed costs from total contribution margin to get operating profit (EBIT).
Why is contribution margin important for pricing?
It reveals whether a product is profitable to sell at its current price. If the contribution margin is negative, every sale increases losses. It also enables break-even analysis and helps prioritise which products to promote.
Can contribution margin be used to compare products?
Yes. When resources are limited (such as factory floor space or machine hours), you can rank products by contribution margin per unit of the constrained resource to determine which mix maximises profit.
Official sources
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.