What is the contribution margin formula?

Contribution margin per unit = selling price − variable cost per unit. Total contribution = contribution per unit × units sold.

What is the contribution margin ratio?

Contribution margin ÷ selling price, or total contribution ÷ total sales.

How is contribution margin different from gross margin?

Contribution margin subtracts all variable costs; gross margin subtracts cost of goods sold, which can include fixed production costs.

Can contribution margin be negative?

Yes, if the variable cost exceeds the price. Each extra sale then increases the loss.

Contribution Margin Formula and Ratio

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Contribution Margin Calculator

Contribution margin is the amount each unit sold contributes toward covering fixed costs and then generating profit. Per unit, it is the selling price minus the variable cost per unit. As a percentage of the price it is the contribution margin ratio, and multiplied by the units sold it is the total contribution for the period.

Formula

CM per unit = Price − Variable cost per unit CM ratio = CM per unitPrice Total CM = CM per unit × Units

Where

Price: selling price per unit
Variable cost per unit: costs that vary with each unit sold
Units: number of units sold

Calculator

Price per unit

Variable cost per unit

Units sold

Fixed costs (optional, for operating income)

Result and step-by-step solution

Contribution margin per unit

20.00

CM ratio 40%; total contribution 80,000.00 toward fixed costs of 60,000.00, leaving operating income of 20,000.00.

Per unit
50.00 − 30.00 = 20.00
Ratio
20.0050.00 = 40%
Total contribution
20.00 × 4,000 = 80,000.00
Operating income
80,000.00 − 60,000.00 = 20,000.00

How to use the formula

Unlike gross margin, contribution margin separates costs by behaviour rather than by function: variable costs include every cost that rises with volume, such as materials, sales commissions, card fees and shipping, whether they sit in cost of goods sold or in selling expenses. That makes it the right tool for short-term decisions: pricing a special order, choosing which products to push, or working out how many units you need to sell.

With a price of 50 and a variable cost of 30, each unit contributes 20 and the contribution margin ratio is 40%. Selling 4,000 units produces 80,000 of contribution; after fixed costs of 60,000, operating income is 20,000. The same numbers give a break-even point of 3,000 units and a degree of operating leverage of 4.

Frequently asked questions

What is the contribution margin formula?: Contribution margin per unit = selling price − variable cost per unit. Total contribution = contribution per unit × units sold.
What is the contribution margin ratio?: Contribution margin ÷ selling price, or total contribution ÷ total sales.
How is contribution margin different from gross margin?: Contribution margin subtracts all variable costs; gross margin subtracts cost of goods sold, which can include fixed production costs.
Can contribution margin be negative?: Yes, if the variable cost exceeds the price. Each extra sale then increases the loss.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.