Formula
Contribution margin = Revenue − Variable costsWhat contribution margin measures
Contribution margin is revenue remaining after variable costs. With $80,000 revenue and $48,000 variable costs, contribution is $32,000 and the contribution margin rate is 40%.
That amount is available to cover fixed costs; only the remainder after fixed costs becomes operating profit.
Classify costs consistently
Payment fees and shipping are often variable. Salaries and software may be fixed over a relevant volume range. Mixed costs should be split when the decision requires precision.
Assumptions
- Costs are classified consistently as variable or fixed.
Sources and methodology
CalcMotive publishes the formula and assumptions so you can decide whether the estimate fits your use case. See our methodology standards.