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Contribution Margin Calculator

This contribution margin calculator helps you understand how much each unit you sell contributes to covering your fixed costs and generating profit.

By combining per-unit contribution margin, contribution margin ratio, total contribution margin, and break-even volume in one place, it supports fast, defensible decisions on pricing, cost structure, and target sales.

The formulas implemented follow standard cost-volume-profit (CVP) analysis as taught in university-level managerial accounting and used in financial planning, lending, and internal reporting.

Updated Dec 2, 2025

Results

Contribution margin per unit

$40.00

Contribution margin ratio

40.00%

Total contribution margin

$40,000.00

Profit at this volume (before tax)

$20,000.00

Break-even volume (units)

500

Methodology

Contribution margin measures how much of your sales revenue remains after covering variable costs and is therefore available to cover fixed costs and profit.

On a per-unit basis, the contribution margin per unit is calculated as selling price per unit minus variable cost per unit.

The contribution margin ratio expresses this relationship as a percentage: contribution margin per unit divided by selling price per unit.

Total contribution margin for a given volume is calculated as contribution margin per unit multiplied by the number of units sold in the period.

Profit (operating income before taxes and interest) in a single-product CVP model is calculated as total contribution margin minus total fixed costs for the same period.

The break-even point in units is the sales volume at which total contribution margin exactly equals total fixed costs, and it is calculated as fixed costs divided by contribution margin per unit.

These relationships assume a standard set of CVP assumptions: a constant selling price per unit, constant variable cost per unit, fixed costs that do not change within the relevant range, and that all units produced are sold.

Worked examples

Example 1 – Per-unit and ratio: A product sells for 50 per unit and has a variable cost per unit of 30. The contribution margin per unit is 20 (50 minus 30). The contribution margin ratio is 20 divided by 50, or 40%. This means that for every 1 in sales, 0.40 is available to cover fixed costs and profit.

Example 2 – Total margin and break-even: Suppose fixed costs for the period are 80,000 and the same product has a contribution margin per unit of 20. The break-even volume is 80,000 divided by 20, or 4,000 units. If you plan to sell 5,000 units, total contribution margin is 20 multiplied by 5,000, or 100,000. Operating income before tax is then 100,000 minus 80,000, or 20,000.

Example 3 – Interpreting a low contribution margin: If the calculator shows a contribution margin ratio of only 10%, a small drop in sales volume or a small increase in variable cost can quickly eliminate profit. In this case, managerial responses might include revisiting price, redesigning the product or process to reduce variable cost, or re-evaluating whether the product fits the company’s strategy.

Key takeaways

Use this calculator to quickly quantify how pricing, volume, variable costs, and fixed costs interact in your business model.

Higher contribution margin per unit and contribution margin ratio generally mean a faster path to break-even and greater resilience to short-term swings in sales volume.

Because the tool is built on standard CVP formulas, it is suitable for initial scenario planning, lending discussions, and internal management reporting, but complex multi-product or capacity-constrained environments may require more detailed modeling.

Further resources

Expert Q&A

What is contribution margin in simple terms?

Contribution margin is the amount of money from each sale that is left after variable costs are paid. That amount contributes first to covering fixed costs and then to profit once fixed costs have been fully covered.

How is contribution margin per unit calculated?

Contribution margin per unit is calculated by subtracting the variable cost per unit from the selling price per unit. For example, if you sell for 50 per unit and your variable cost is 30, your contribution margin per unit is 20.

What is the contribution margin ratio and why is it useful?

The contribution margin ratio is the contribution margin per unit divided by the selling price per unit, expressed as a percentage. It tells you what percentage of each sales dollar is available to cover fixed costs and profit, making it easier to compare products and simulate changes in volume or price.

How does contribution margin relate to the break-even point?

The break-even point in units is calculated as total fixed costs divided by contribution margin per unit. A higher contribution margin per unit lowers the break-even volume because each unit contributes more toward covering fixed costs.

Can I use this calculator for a business with multiple products?

This calculator is based on a single-product or constant sales mix CVP model. For multi-product businesses, contribution margin can still be very useful, but you would typically compute a weighted average contribution margin based on your sales mix or analyze major products separately.

What counts as a variable cost versus a fixed cost?

Variable costs change in direct proportion to volume, such as direct materials, piece-rate labor, sales commissions, and certain packaging or shipping costs. Fixed costs, such as rent, salaried staff, and many insurance or licensing fees, do not change with short-term volume within the relevant range.

How is contribution margin different from gross margin?

Gross margin is usually defined as sales minus cost of goods sold under financial reporting rules, which may treat some overhead items differently. Contribution margin is defined for internal decision-making as sales minus variable costs. It focuses on how sales volume and variable costs drive the ability to cover fixed costs and generate profit.

Is a low contribution margin always a problem?

A low contribution margin makes it harder to cover fixed costs and can be risky if sales volumes are volatile. However, some high-volume, low-margin business models can still be viable if fixed costs are tightly controlled and demand is stable. Contribution margin should be interpreted together with volume, risk, and strategic positioning.

Sources & citations