Contribution Margin Calculator
A $60 product with $24 of variable cost contributes $36 a unit, a 60% contribution margin ratio, toward fixed costs. Enter your own price and costs in the contribution margin calculator.
Contribution margin
- Contribution margin $60.00 price less $24.00 variable cost. This is what each sale contributes toward fixed costs, and it is the number that drives everything else here, not the gross margin and not the price. The ratio is $36.00 / $60.00: 60% of every sales dollar.
- $36.00 per unit (60%)
- Break-even $18,000.00 of fixed costs / $36.00 = 500, rounded up to whole units: $30,000.00 of revenue.
- 500 units a month
- Total contribution margin 750 units x $36.00. It covers the $18,000.00 of fixed costs with $9,000.00 left as profit.
- $27,000.00
- Fixed costs to cover At $36.00 a unit, that takes 500 sales.
- $18,000.00
- For $6,000.00 of profit 167 units beyond break-even. Past break-even, every unit's full contribution drops to profit.
- 667 units ($40,020.00)
- At your current volume 750 units is 250 above break-even.
- $9,000.00 profit
- Margin of safety Sales could fall 33.3% before you reach break-even. Under about 20% is a thin cushion for a business with any seasonality.
- 33.3%
- A 10% price rise 71 fewer. A price rise flows entirely into contribution, which is why it is almost always the strongest lever.
- break-even falls to 429 units
- A 10% cut in variable cost 31 fewer.
- 469 units
- A 10% cut in fixed costs 50 fewer.
- 450 units
- Operating leverage Each 1% change in sales moves profit by about 3.00%. High fixed costs relative to contribution amplify both directions. That is why a business just past break-even is fragile and one well past it is very profitable.
- 3.00x
| Units | Revenue | Variable cost | Contribution | Profit |
|---|---|---|---|---|
| 0 | $0.00 | $0.00 | $0.00 | -$18,000.00 |
| 250 | $15,000.00 | $6,000.00 | $9,000.00 | -$9,000.00 |
| 500 | $30,000.00 | $12,000.00 | $18,000.00 | $0.00 |
| 750 | $45,000.00 | $18,000.00 | $27,000.00 | $9,000.00 |
| 1,000 | $60,000.00 | $24,000.00 | $36,000.00 | $18,000.00 |
- The split between fixed and variable is less obvious than it looks and decides the answer. Salaried staff are fixed; hourly staff scaling with volume are variable. Payment processing fees are variable and often forgotten.
- Break-even is a monthly snapshot at one price. Real businesses have a product mix with different contribution margins, and the blended figure moves as the mix does.
How the Break-Even Calculator works
Contribution margin is what one more sale adds after the costs that come with it. The contribution margin formula is price less variable cost per unit. On a $60 price with $24 of variable cost, the contribution margin per unit is $36.
The contribution margin ratio is the same figure over price: $36 / $60 = 60%. It says how much of each sales dollar is left to pay fixed costs and then to become profit. Multiply it by revenue and you have total contribution without counting units, which is how it is used on an income statement with many products. Expressed as a percentage, it is sometimes called the contribution margin percentage.
Total contribution margin is the unit figure times the volume. At 750 units a month that is $27,000. Fixed costs of $18,000 come out of it, and the $9,000 left is operating profit.
Break-even follows directly. Fixed costs divided by the contribution margin per unit gives the units that cover them: $18,000 / $36 = 500 units, or $30,000 of revenue. Every unit past 500 adds its full $36 to profit. For $6,000 of profit the business needs 667 units.
Variable costs are the ones that rise with each unit: materials, packaging, shipping, payment processing, sales commission and hourly labor that tracks volume. Rent, salaries and software are fixed. Putting a fixed cost into the variable figure understates the contribution margin and overstates break-even.
Contribution margin differs from gross margin. Gross margin subtracts cost of goods sold, which can include fixed production overhead and leaves out variable selling costs such as commission and shipping. Contribution margin sorts costs by how they behave, so it is the figure for decisions about one more order, a discount or a new sales channel.
Break-Even Calculator FAQ
What is the contribution margin formula?
Contribution margin per unit = price - variable cost per unit. A $60 product with $24 of variable cost has a $36 contribution margin. Total contribution margin is that times the units sold: $27,000 at 750 units.
How do I calculate the contribution margin ratio?
Divide the contribution margin by the price, or total contribution by total revenue. $36 / $60 = 0.60, a 60% contribution margin ratio. Fixed costs divided by that ratio give break-even revenue: $18,000 / 0.60 = $30,000.
How does contribution margin give the break-even point?
Divide fixed costs by the contribution margin per unit. $18,000 / $36 = 500 units. Below 500 the total contribution does not cover fixed costs, and above it each unit adds $36 of profit.
What is the difference between contribution margin and gross margin?
Contribution margin subtracts only variable costs, including selling costs like commission and shipping. Gross margin subtracts cost of goods sold, which can include fixed factory overhead. Contribution margin is the one to use for break-even and for pricing a single order.