Business
Contribution Margin Calculator
Works contribution margin, which is the figure for every keep-or-drop decision.
Result
Every cost must be classified as either fixed or variable, and some are genuinely mixed. Put semi-variable costs like fuel with variable, and anything you owe regardless of volume with fixed.
Get a Free Business AuditHow the calculation works
Selling price less variable cost, per unit and as a percentage of price. Contribution is what each sale adds toward fixed costs and profit, which makes it the right basis for break-even, for pricing decisions at the margin, and for deciding whether a product or service is worth continuing.
What moves the number
- Which costs are genuinely variable with the unit.
- Selling price after discounts.
- Whether allocated overhead has been wrongly treated as variable.
- Capacity, since contribution per constrained resource matters.
Where this one goes wrong
A product showing a loss after allocated overhead can still be worth keeping if its contribution is positive, because dropping it removes the contribution and leaves the overhead behind, and that is the single most common error in product rationalisation. Decide on contribution, not allocated profit. Where a resource is constrained, contribution per unit of that resource rather than per unit sold is the ranking that matters.
Before you quote
- Decide keep-or-drop on contribution, not allocated profit.
- Include only genuinely variable costs.
- Rank by contribution per unit of the constrained resource.
Questions
About this calculator
Should I drop a product that shows a loss?
Not if its contribution is positive, because dropping it removes the contribution and leaves the allocated overhead behind. That is the most common error in product rationalisation and it makes the business worse rather than better.
What counts as a variable cost?
Costs that change with the unit: materials, direct labour where it genuinely varies, freight, transaction fees. Allocated overhead is not variable however it is presented, and treating it as such distorts every decision built on the figure.
What if capacity is constrained?
Then rank by contribution per unit of the constrained resource rather than per unit sold, whether that is a machine hour, a chair hour or a square foot. The ranking is frequently different and it is the one that maximises total contribution.
The formula
contribution margin = price − variable cost per unit
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Please keep the attribution line. It is the only thing we ask in return.
How to use this calculator
- Price per unit ($). Enter your own figure; the page starts at $950.
- Variable cost per unit ($). Enter your own figure; the page starts at $520.
- Units sold per month. Enter your own figure; the page starts at 45.
- Fixed costs per month ($). Enter your own figure; the page starts at $18,000.
The result updates as you type, so you can try a figure, see what it does to contribution margin per unit, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Price per unit | $950 |
| Variable cost per unit | $520 |
| Units sold per month | 45 |
| Fixed costs per month | $18,000 |
What comes out
| Result | Value |
|---|---|
| Contribution margin per unit main result | $430.00 |
| Contribution margin ratio | 45.26% |
| Total monthly contribution | $19,350 |
| Profit after fixed costs | $1,350 |
Each sale contributes $430.00. At 45 a month that is $19,350, leaving $1,350 after fixed costs.
How sensitive the answer is
Holding everything else steady and changing only price per unit, this is what happens to contribution margin per unit. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Price per unit ($) | Contribution margin per unit |
|---|---|
| $475 | -$45.00 |
| $713 | $193.00 |
| $950 example above | $430.00 |
| $1,425 | $905.00 |
| $1,900 | $1,380.00 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Price per unit ($)
- A money amount, starting at $950.
- Variable cost per unit ($)
- A money amount, starting at $520.
- Units sold per month
- A number, between 0 and 1000000, starting at 45.
- Fixed costs per month ($)
- A money amount, starting at $18,000.
What the results tell you
| Result | What it is |
|---|---|
| Contribution margin per unit | The headline result. A money figure. |
| Contribution margin ratio | A percentage. |
| Total monthly contribution | A money figure. |
| Profit after fixed costs | A money figure. |
Where these figures usually mislead
Business calculations assume the inputs are steady. Seasonality, a few large customers, and slow payment all break that assumption. A figure that looks healthy annually can still leave you short in a given month.
Keep going
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