Formula
contribution margin = price − variable cost per unit contribution margin ratio = contribution margin / price
Contribution margin
Contribution margin is the money each sale leaves after its own variable costs, and it is what pays for fixed costs.
Worked example
A €120 product with €45 of variable cost has a contribution margin of €75, or 63 percent of price.
Once fixed costs are covered, contribution margin becomes profit. Before that point, it is the only thing working against them.
Raising the price moves it more than cutting variable cost by the same amount, because price sits on the gross side of the subtraction.
Keep this number live
Plainhub computes contribution margin from money you record in plain words, so it is current when you need it rather than the night before a board meeting.
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