Contribution margin calculator
Enter a selling price, variable cost per unit, the number of units sold and (optionally) fixed costs. See how much each unit and the whole volume contribute toward fixed costs and profit.
Formulas used
Total contribution margin = contribution margin per unit × units sold
Contribution margin ratio = contribution margin per unit ÷ price
Variable cost ratio = variable cost per unit ÷ price = 1 − contribution margin ratio
Operating income = total contribution margin − fixed costs
Worked example as a contribution-format income statement
Using the default inputs (500 units at $40, $25 variable cost per unit and $5,000 of fixed costs, all illustrative):
| Line | Total | Per unit | % of sales |
|---|---|---|---|
| Sales | $20,000 | $40 | 100% |
| Variable costs | $12,500 | $25 | 62.5% |
| Contribution margin | $7,500 | $15 | 37.5% |
| Fixed costs | $5,000 | ||
| Operating income | $2,500 | 12.5% |
The 37.5% ratio tells you that every additional $1 of sales adds about $0.375 to operating income, as long as price and variable cost hold and fixed costs do not step up. If sales rose by $2,000 (50 more units), operating income would rise by $750.
How to read the outputs
- Contribution per unit is what one more sale adds before fixed costs. It is the number to compare when deciding whether a one-off order covers its own variable costs.
- Contribution margin ratio is the per-dollar version; it is what you need for break-even revenue and for comparing products with very different prices.
- Operating income appears only if you enter fixed costs. A negative figure means the volume entered is below break-even; the break-even calculator shows how far below.
Contribution margin is not gross margin
Gross margin subtracts cost of goods sold, which can include fixed production overhead, and ignores variable selling costs such as commissions. Contribution margin subtracts all variable costs, production and selling, and nothing fixed. The two can differ a lot for the same product. For gross margin and markup arithmetic, use the sibling site ameti.capital.
Can contribution margin be negative?
Yes. If variable cost per unit exceeds price, each sale makes the loss larger, and no amount of volume reaches break-even.
What if I sell several products?
Run each product separately to compare contribution per unit and ratio, then use a weighted average for break-even; see the sales-mix section of break-even in units vs revenue.
Sources for definitions
Definitions follow standard managerial-accounting usage as presented in the sources above. All dollar figures on this page are our own illustrative arithmetic.
Educational arithmetic only. Results do not set prices, forecast sales or establish suitability for any lending, investment or business decision. See Use & limitations.