Calculate contribution margin per unit and ratio. Includes break-even analysis, target profit planning, and industry benchmarking. Essential for pricing decisions.
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Contribution margin is one of the most important financial metrics for pricing decisions and profitability analysis. It tells you exactly how much revenue from each sale is available to cover fixed costs and generate profit after paying variable costs. This calculator provides contribution margin per unit, contribution margin ratio, break-even analysis, and target profit planning. Whether you're setting prices, analyzing product profitability, or making make-vs-buy decisions, understanding your contribution margin is essential.
Contribution margin is the portion of sales revenue that is not consumed by variable costs and therefore contributes to covering fixed costs and generating profit. It can be expressed as a per-unit dollar amount (Contribution Margin per Unit = Selling Price − Variable Cost) or as a percentage ratio (Contribution Margin Ratio = CM per Unit ÷ Selling Price × 100). A higher contribution margin means more money from each sale goes toward fixed costs and profits. For example, if you sell a product for $100 with $60 in variable costs, your CM is $40 per unit and your CM ratio is 40%.
Contribution Margin Formulas
CM per Unit = Selling Price − Variable Cost per Unit | CM Ratio = CM per Unit ÷ Selling Price × 100Know exactly how price changes affect your profitability. See how different price points impact your contribution margin and break-even volume.
Determine exactly how many units you need to sell to cover all fixed costs. Essential for budgeting and forecasting.
Work backward from your profit goals to calculate the exact sales volume or revenue needed to achieve them.
Evaluate which products or services contribute most to your bottom line when deciding where to focus resources.
Compare your CM ratio against industry averages to understand your competitive position and pricing power.
Visualize your revenue, costs, and profit at different volume levels to make informed business decisions.
Before launching a new product, calculate the CM at different price points to find the optimal balance between margin and expected volume.
Compare the contribution margin of producing in-house versus outsourcing to determine the most profitable approach.
Use break-even analysis to set sales targets and understand the volume needed to achieve profitability.
Quantify how reducing variable costs (better supplier pricing, process improvements) impacts profitability.
Evaluate whether to accept special orders at lower prices – as long as CM is positive, it contributes to fixed cost coverage.
Compare contribution margins across your product line to prioritize high-margin products in production and sales efforts.
A 'good' CM ratio varies significantly by industry. SaaS/software businesses often achieve 70-90% CM ratios. Retail typically sees 30-50%, while manufacturing is usually 20-40%. Compare against your industry benchmark – the key is having enough margin to cover fixed costs and generate desired profit.