Contribution Margin Calculator
What each unit sold contributes to fixed costs and profit, the contribution margin ratio, and the units needed to break even or reach a profit target.
Result
Contribution per unit: $30.50
Assumes price and variable cost stay the same at every volume, and the mix stays as entered.
- Contribution margin ratio
- 62.24%
- Units to break even
- 7,214
- Revenue at break-even
- $353,486.00
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Results are arithmetic estimates based on the assumptions you enter, not accounting, tax, investment or lending advice. Forecasts can be wrong and important decisions should be checked with a qualified adviser. Read the full disclaimer
How to use the Contribution Margin Calculator
- Choose one product, or a sales mix of several.
- Enter the price and the variable cost per unit, or for a mix, each product with the units you sell in a typical period.
- Enter your fixed costs, and optionally a target profit, to see the units needed.
The formulas
contribution per unit = price − variable costcontribution margin = contribution ÷ pricebreak-even units = fixed costs ÷ contribution, rounded upunits for a target = (fixed costs + target profit) ÷ contribution, rounded upEach unit sold pays its own variable cost and contributes the rest toward fixed costs. Once fixed costs are covered, the whole contribution is profit.
Using the ratio
The contribution margin ratio tells you how much of each extra unit of revenue reaches profit. At 62.24%, another 10,000 of sales adds about 6,224 to profit, provided fixed costs do not change. This is useful for judging a discount: cutting the price cuts contribution by the full amount of the cut.
Assumptions
Price and variable cost are taken as the same at every volume, and fixed costs as fixed. Over a wide range neither is true: suppliers give volume discounts, and a larger business needs more space and staff. Use the result over the range you actually expect to sell.
With your numbers
- Contribution = $49.00 − $18.50 = $30.50 a unit
- Margin = $30.50 ÷ $49.00 = 62.24%
- Break-even = $220,000.00 ÷ $30.50, rounded up = 7,214 units
Quick reference
Assumes price and variable cost stay the same at every volume, and the mix stays as entered.
| Example | Contribution per unit |
|---|---|
| 49 price, 18.50 cost, 220,000 fixed | $30.50 |
| 20 price, 12 cost, 100,000 fixed | $8.00 |
| Same, with a 50,000 profit target | $8.00 |
| Selling below cost | -$2.00 |
| Two-product mix | $23.10 |
| 5 price, 1.20 cost, 30,000 fixed | $3.80 |
Common questions about the Contribution Margin Calculator
- What is the difference between contribution margin and gross margin?
- Contribution margin subtracts only costs that rise with each unit sold. Gross margin subtracts cost of goods sold, which in most accounts also carries some fixed production costs. Contribution is the better tool for decisions about volume and price, because it separates what changes with sales from what does not.
- Why does the break-even round up?
- Because you cannot sell part of a unit, and the last part-unit is still needed. 220,000 of fixed costs at 30.50 a unit is 7,213.11 units, so 7,214 must be sold to cover them.
- How does a sales mix work?
- The page weights each product's contribution by how many you sell. Selling 6,000 of a product contributing 30.50 and 4,000 of one contributing 12.00 averages 23.10 a unit across the mix. Break-even is then in units of that mix. If the mix shifts toward the lower-contribution product, more units are needed.
- What if contribution is negative?
- Then every sale adds to the loss, and selling more makes it worse. No volume breaks even. The fix is price or variable cost, not volume.