Contribution Margin Calculator

Subtract every cost that only occurs because you sold one more unit from the net selling price: contribution margin per unit = net price − (material cost + other variable cost + commission on the net price). With the worked example on this page — a net price of $100, $38 of material, $12 of packaging, freight and payment fees, and 5% commission — the variable cost is $55 and the contribution margin is $45 per unit, a ratio of 45%. Multiply by 1,200 units a month and the product contributes $54,000; after $18,000 of product-specific fixed costs, $36,000 is left for company overhead and profit. The full formula is printed under “How is this calculated?”.

Gross margin subtracts the cost of goods sold, and cost of goods sold usually has fixed production overhead absorbed into it — depreciation on the line, a share of the factory. Contribution margin subtracts only costs that move with the unit, so it answers a different question: what one more sale actually adds. That is why contribution margin, not gross margin, is the number to use for a pricing floor, an accept-or-decline decision on a one-off order, or working out which product to push when capacity is the constraint.

Only the ones that would disappear if you stopped selling this product: a machine leased for it alone, its dedicated product manager, its own tooling, moulds or certification fees. Rent, administration, the management team and anything shared across the range stay out, because they do not go away with the product. That separation is what makes the two-stage figure on this page meaningful — the first stage is what the unit contributes, the second is what the product still contributes once it has paid for itself.

No. The ratio tells you what share of each sale is left over; the monthly total tells you how much money that actually is. A 70% ratio on 100 units contributes less than a 30% ratio on 1,000. Use the ratio to compare products competing for the same constrained resource — machine hours, shelf space, a sales team’s attention — and use the monthly total and the stage-two figure to decide whether the product earns its place at all.

The pre-filled numbers are demonstration defaults that produce a realistic example — they are not claimed industry averages. Replace them with your own figures for an accurate result. Where a field is labelled as an assumption, adjust it to match your business; the methodology page lists every default and its status.

Calculating stores nothing: every calculation runs in your browser, there is no account, and nothing you type is sent while you calculate. Only if you download the PDF report do we receive the work email you enter plus a short summary of the inputs you modelled, so we can follow up — the privacy page states exactly what is kept.