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Definition

What is Contribution Margin?

Revenue minus variable costs — the amount each unit contributes toward fixed costs and profit.

Contribution margin is the revenue left after all variable costs are subtracted. Unlike gross margin, it explicitly separates variable costs from fixed costs. It shows how much each additional unit sold contributes to covering overhead and generating profit. Contribution margin per unit = selling price minus variable cost per unit.

Formula

Contribution Margin (%) = (Revenue − Variable Costs) ÷ Revenue × 100

Example

A $120 product with $45 in variable costs has a contribution margin of ($120 − $45) ÷ $120 × 100 = 62.5%.

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Related terms

  • Gross Margin — Revenue minus cost of goods sold, expressed as a percentage of revenue.
  • Break-Even ROAS — The minimum return on ad spend needed to cover the cost of running an ad campaign.