Contribution Margin Calculator Formula

Understand the math behind the contribution margin calculator. Each variable explained with a worked example.

Use the Contribution Margin Calculator

Formulas Used

Contribution Margin Ratio

contribution_margin_pct = price > 0 ? ((price - variable_cost) / price) * 100 : 0

Contribution Margin Per Unit

contribution_margin_unit = price - variable_cost

Variable Cost Ratio

variable_cost_ratio = price > 0 ? (variable_cost / price) * 100 : 0

Variables

VariableDescriptionDefault
priceSelling Price Per Unit(USD)100
variable_costVariable Cost Per Unit(USD)40

How It Works

How to Calculate Contribution Margin

Formula

Contribution Margin Ratio = [(Price - Variable Cost) / Price] x 100 Contribution Margin Per Unit = Price - Variable Cost

Contribution margin tells you how much each unit sold contributes to covering fixed costs and generating profit. It is essential for break-even analysis and pricing decisions.

Worked Example

A product sells for $100 with a variable cost of $40 per unit.

price = 100variable_cost = 40
  1. 01Contribution margin per unit = $100 - $40 = $60
  2. 02Contribution margin ratio = ($60 / $100) x 100 = 60%
  3. 03Variable cost ratio = ($40 / $100) x 100 = 40%

Ready to run the numbers?

Open Contribution Margin Calculator