Contribution margin: what it is and how to calculate it
The contribution margin is what is left over from each sale after the costs that vary with it: the direct cost of delivery, sales taxes, commissions and fees. This amount pays the fixed costs and, after them, becomes a profit. Enter the price and variable costs to see how much is left over per sale and how many sales you need to tie.
Resultado
Formula
Contribution margin = price - direct cost - (taxes + commissions and fees) × price
Contribution margin % = contribution margin ÷ price
Break-even point = fixed costs ÷ contribution margin per sale
This is the simple model: it considers a single product or service, with average price and costs.It serves as a first reading.
Example
Example: price of $10,000, direct cost of $4,000, taxes of 6%, commissions and fees of 5%, and fixed costs of $30,000 per month.
Taxes, commissions, and fees: 11% × $10,000 = $1,100.
Contribution margin: $10,000 - $4,000 - $1,100 = $4,900, or 49.0% of price.
Break-even: $30,000 ÷ $4,900 = 6.1 sales, that is, 7 sales per month.
In revenue: $30,000 ÷ 0.49 = $61,224.49.
Glossary
Contribution margin: what is left over from each sale after variable costs, to pay for fixed costs and generate profit.
Variable costs: costs that change with the number of sales, such as delivery, sales taxes, commissions and fees.
Custos fixos: costs that do not change with the number of sales, such as rent, salaries and tools.
Margin bruta: the portion of revenue left over after the direct costs of delivering the product or service. Contribution margin also discounts taxes, commissions, and fees.
Break-even: the sales volume at which the contribution margin exactly covers fixed costs.
Frequently asked questions
What is contribution margin?
It's what's left over from each sale after deducting variable costs.This amount is used to pay fixed costs and, after them, becomes profit.
How to calculate the contribution margin?
Subtract the direct cost of delivery and the amount of taxes, commissions and fees from the price. For example, a price of $10,000, direct cost of $4,000 and 11% of taxes, commissions and fees leave $4,900 per sale.
What is the difference between contribution margin and gross margin?
Gross margin discounts only the direct costs of delivering the product or service. Contribution margin discounts anything that varies with the sale, including taxes, commissions, and fees. In some businesses the two numbers are very close.
What is break-even point?
It is the sales volume in which the contribution margin exactly covers fixed costs.Below it there is loss, above it there is profit.
Can I use it for a project or one-time sale?
Yes. Use the average value of a project as the price and the average cost of delivering it. For sales with very different prices from each other, calculate one price range at a time.
Are my data saved anywhere?
I don't save the values you type. The calculation happens in your browser. If you click "Copy link", the values are in the URL of that link, so share only if you want the other person to see the same numbers.
Want to know where your growth stalls?
The contribution margin is a number. The Growth Maturity Diagnostic shows what is behind it: acquisition, retention, data and process. It's free and only takes a few minutes.
Make the diagnosisIf the diagnosis points the way, Growth Blueprint I work with you in 4 weekly meetings to turn this into an experimental plan.