Data provided:
Selling price per unit
\$
Variable cost per unit
\$
Number of units
Results:
Contribution margin
\$
Contribution margin ratio
%

# Contribution Margin Calculator

By Maria Kluziak

If you need to estimate how much of your business's revenues will be available to cover the fixed expenses after dealing with the variable costs, this calculator is the perfect tool for you. You can use it to learn how to calculate contribution margin, provided you know the selling price per unit, the variable cost per unit, and the number of units you produce. The calculator will not only calculate the margin itself but will also return the contribution margin ratio.

## What is the contribution margin?

In accounting, contribution margin is the difference between the sales revenue and the variable costs of a product. It represents how much money can be generated by each unit of a product after deducting the variable costs, and, as a consequence, allows for an estimation of the profitability of a product.

## How to calculate the contribution margin and the contribution margin ratio?

The contribution margin formula is quite straightforward. All you have to do is multiply both the selling price per unit and the variable costs per unit by the number of units you sell, and then subtract the total variable costs from the total selling revenue.

To put it shortly:

`Contribution Margin = (Selling Price per Unit * Number of Units) - (Variable Costs per Unit * Number of Units)`

Knowing how to calculate contribution margin allows us to move on to calculating the contribution margin ratio. To get the ratio, all you need to do is divide the contribution margin by the total revenue.

`Contribution Margin Ratio = Contribution Margin / (Selling Price per Unit * Number of Units)`

The contribution margin is given as a currency, while the ratio is presented as a percent.

## Using the contribution margin formulas - example

Let's say we have a company that produces 100,000 units of a product, sells them at \$12 per unit and has a variable costs of \$8 per unit.

`Contribution Margin = (\$12 * 100,000) - (\$8 * 100,000) = \$1,200,000 - \$800,000 = \$400,000`

Now let's calculate the contribution margin ratio.

`Contribution Margin Ratio = \$400,000 / (\$12 * 100,000) = \$400,000 / \$1,200,000 = 0.3333 = 33.33%`

## Why is the contribution margin useful?

Knowing how to calculate the contribution margin is an invaluable skill for managers, as using it allows for the easy computation of break-evens and target income sales. This, in turn, can help people make better decisions regarding product & service pricing, product lines, and sales commissions or bonuses.

Aside from the uses listed above, the contribution margin's importance also lies in the fact that it is one of the building blocks of break-even analysis. With that all being said, it is quite obvious why it is worth learning the contribution margin formula.