Are you seeking to determine the actual revenue generated by your company after basic manufacturing expenses have been paid? This is where the Contribution Margin joins the context, and you can quickly calculate it with our Contribution Margin Calculator.

What is Contribution Margin?

Contribution Margin is the difference between your product’s selling price and its variable costs (like raw materials, direct labor, and shipping). It tells you how much money is left to cover fixed costs (like rent, salaries, and equipment) and ultimately contribute to profit.

Key Terms Explained:

• Selling Price per Unit: The price at which you sell each product.
• Variable Cost per Unit: Costs that change depending on how many units you produce (e.g., materials, direct labor).
• Contribution Margin per Unit: Selling price – variable cost.
• Contribution Margin Ratio: Shows what percentage of sales is contributing to fixed costs and profit.

Why is it Important?

Knowing your contribution margin helps you:

• Set profitable pricing strategies.
• Identify which products are worth promoting.
• Make informed decisions about scaling or cutting product lines.
• Understand break-even points (when your revenue equals your total costs).

Who Should Use It?

• Small business owners looking to understand their product profitability.
• Entrepreneurs planning a new product or service.
• Finance and accounting teams to evaluate product performance.
• Startup founders pitching to investors and justifying business models.