Plan
Contribution Margin Calculator
Computes contribution margin per unit, as a ratio, and in total for as many products or lines as you paste in, then ranks where contribution actually comes from.
How this calculation works
- Contribution margin per unit is price less variable cost per unit — the amount each unit contributes to fixed costs and profit.
- The contribution margin ratio is that margin divided by price. It answers what share of each revenue dollar survives variable cost, which makes lines with different price points comparable.
- Total contribution is margin per unit multiplied by volume. Ranking lines by total contribution rather than by ratio is usually the more actionable view: a thin-margin, high-volume line can out-contribute a high-margin niche one.
- The mix column shows each line's share of total contribution, which is where the decision usually lives.
Conventions and edge cases
- Contribution margin is not gross margin. Gross margin deducts COGS, which usually contains fixed manufacturing overhead; contribution margin deducts only genuinely variable cost. The two rarely agree and are not interchangeable.
- Allocated fixed costs must be excluded. Including any of them understates contribution and makes lines look unprofitable that are in fact covering overhead.
- A zero price produces no ratio rather than a division-by-zero result. The absolute margin is still reported.
Frequently asked questions
- What is the difference between contribution margin and gross margin?
- Gross margin subtracts cost of goods sold, which typically includes fixed manufacturing overhead absorbed into unit cost. Contribution margin subtracts only costs that genuinely vary with volume. Contribution margin is the right basis for volume, pricing, and drop-the-line decisions; gross margin is a reporting measure.
- Should I rank products by contribution margin ratio or total contribution?
- Total contribution, in most cases. Ratio tells you the quality of each sale, total tells you how much money the line actually delivers. A 60% margin line doing small volume can contribute far less than a 25% margin line at scale.
- Do I include allocated overhead in variable cost?
- No. Allocated overhead does not change with volume, so including it turns a contribution analysis into a full-cost analysis and will make marginal lines look like losers when they are still covering fixed costs.
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