Contribution Margin
01 Definition
Contribution Margin meaning: Revenue left after variable costs, available to cover fixed costs and profit.
Contribution margin is revenue minus the variable costs of delivering a product or service. It shows how much each sale contributes toward fixed costs and profit. It can be shown per unit or as a percentage of revenue, and it excludes fixed overhead.
Why it matters
How Contribution Margin fits the work
It shows how much each sale really adds after direct costs, which guides pricing, discounting, and which products or channels to push.
In context
A product sells for 40 dollars with 15 dollars of variable cost, giving a contribution margin of 25 dollars, or about 63 percent.
Practical note
Deciding which costs count as variable versus fixed changes the result. Be consistent, and do not confuse contribution margin with gross or net profit.