How to calculate contribution margin
Subtract variable cost from price, then size break-even.
1
Enter the selling price
Use net price after typical discounts.
2
Add variable costs
Include materials, packaging, shipping and sales fees per unit.
3
Add fixed costs
Enter rent, salaries and other costs that do not vary with volume.
What does this tool do?
Contribution margin is the revenue left after variable costs. It is the amount each unit contributes toward fixed costs, so it drives break-even volume and the operating profit at a given sales level.
The Formula
Contribution margin = Price − Variable cost; Break-even units = Fixed costs ÷ Contribution marginFrequently Asked Questions
What is the difference between contribution margin and gross margin?
Contribution margin deducts all variable costs, which may include shipping and sales commissions. Gross margin typically deducts only the cost of goods sold.
Why does break-even use contribution margin?
Fixed costs do not change with volume, so each unit contributes its margin toward covering them. Break-even is fixed costs divided by the per-unit contribution.