Enter the selling price per unit, variable cost per unit, and the total number of units sold into the contribution margin calculator. The calculator will display the contribution margin amount and ratio in percentage.
Contribution Margin Formula
The following formula is used to calculate the contribution margin.
CM = (SP * N) – (VC *N)
- Where CM is the contribution margin
- SP is the selling price per unit
- N is the number of units sold
- VC is the variable cost.
This yields the contribution margin amount. The contribution ratio can then be calculated by dividing the CM by the selling price per unit times the number of units sold.
Contribution Margin Definition
A contribution margin is defined as the difference between the revenue generated by an item and it’s associated variable costs.
How to calculate contribution margin?
How to calculate a contribution margin
- First, determine the selling price per unit
This will be the selling price of the good sold, not the cost of that good or item.
- Next, determine the number of units sold
Calculate or estimate the total number of units sold.
- Find the variable cost
This will be the total variable costs of the item sold.
- Calculate the contribution margin
Enter the values from above into the CM formula or the calculator to calculate the contribution margin and ratio.
A contribution margin, or CM for short, is a term used in finance or accounting to measure the difference between revenue and variable costs of a product. This shows how profitable an item can be.
This is a simple ratio of the CM to the total revenue.
This will depend on the item and industry. The higher the margin typically the higher the profitability.