Contribution Margin
📈 Investing
Quick Definition
Contribution margin is a measure of a company's profitability, calculated as sales revenue minus variable costs.
Formula
Contribution Margin = Sales Revenue - Variable CostsExamples
- 1A company sells a product for $100, which has a variable cost of $60. The contribution margin is $40 per unit.
- 2In a service business, if the charge for a service is $150 and the variable costs (like labor and materials) are $90, the contribution margin is $60.
- 3During a sales campaign, a product's price is reduced to $80 from $100, while maintaining the same variable cost of $60, resulting in a reduced contribution margin of $20.
Tags
profitabilitycost-managementrevenue-analysisfinancial-analysisbusiness-strategy
Related Terms
Other terms you might find helpful
Break-Even Analysis
Break-even analysis is a financial calculation used to determine the point at which revenue received equals the costs associated with receiving the revenue, indicating no net loss or gain.
Gross Margin
Gross margin is a financial metric that measures the percentage of total sales revenue that exceeds the cost of goods sold (COGS). It indicates how efficiently a company uses labor and supplies in the production process.
Operating Margin
Operating margin is a profitability ratio that measures the percentage of profit a company makes from its operations, relative to its revenue.
Quick Info
Category:Investing
Difficulty:intermediate
Last Updated:6/18/2025