How this calculator works
Contribution margin is the selling price less the variable cost of making or buying the unit. It is the money each sale leaves to pay fixed costs once it is sold, and only after fixed costs are covered does it become profit. The ratio expresses the same contribution as a share of price, which makes it easy to compare products with different price levels. Total contribution multiplies the unit margin by the units sold, and profit subtracts fixed costs from that total.
Formula
Contribution margin per unit = selling price - variable cost per unit. Contribution margin ratio = (price - variable cost) / price. Total contribution = unit contribution × units sold. Profit = total contribution - fixed costs.
Worked example
A $50 price with a $30 variable cost leaves $20 of contribution per unit, a 40% ratio. Selling 1,000 units gives $20,000 of total contribution. Fixed costs of $8,000 leave a profit of $12,000.
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Frequently asked questions
What costs are variable?
Costs that rise with each unit sold: materials, packaging, sales commission, payment processing and outbound freight. Rent, salaried staff and insurance are normally fixed. A cost that steps up at certain volumes is mixed, so treat it carefully.
What if contribution is negative?
A variable cost above the selling price means every sale loses money before fixed costs. The calculator still reports the negative margin so the problem is visible, but no volume fixes that unless price or cost changes.
How is this used in break-even analysis?
Divide fixed costs by the contribution per unit to get the break-even volume. In the example $8,000 / $20 = 400 units. The break-even calculator on this site carries out that step, including rounding up to whole units.