Business, finance and operations
Contribution margin
Revenue minus variable costs.
- Business, finance and operations
Definition
Revenue minus variable costs. It is what each sale contributes towards fixed costs and then profit. It can be shown per unit, in total, or as a percentage of revenue.
For your role
Choose your role to see what this term means in your work.
Why it matters
It shows which products, customers or orders really help cover fixed costs, and it is the basis for break-even and pricing decisions.
Where it is used
Pricing decisions, product profitability and make-or-buy reviews. Used by management accountants, pricing analysts, product managers and commercial finance.
How to calculate it
Contribution = revenue - variable costs
Contribution per unit = price per unit - variable cost per unit
Contribution margin ratio = contribution ÷ revenue
Worked example
Treating Raket Parts B.V. materials, bought-in components and subcontracted processing as variable costs, Q3 2025 contribution = €18,476,412 - €5,969,562 = €12,506,850. Contribution margin ratio = 67.7%. So each extra €100 of sales adds about €67.70 towards fixed costs and profit.
Here it equals gross margin only because the same costs are treated as variable and direct. Where production labour or freight rises with volume, contribution and gross margin differ.
Raket Parts B.V. is a fictional company created for Insyt.
Definitions vary. Which costs count as variable (for example production labour, freight, sales commission) is a judgement that differs between organisations. Check how your organisation calculates it.