Definition – What is a Contribution Margin?
Contribution margin is the value of profit that each unit sold contributes.
It is used to help understand the additional benefit of selling one more unit for the firm.
Formula – How to calculate contribution margin
Contribution Margin = Price per Unit – Variable Cost per Unit
The latest unit sold will sell for $20 and has a variable cost of $10.
Contribution Margin = $20 – $10 = $10
Sources and more resources
- Accounting Tools – Contribution Margin – A quick overview of the concept of contribution margin with an example calculation.
- Wikipedia – Contribution Margin – Formulas, explanations, and examples of what the contribution margin is.
- Investopedia – Contribution Margin – An encyclopedic entry on the contribution margin metric.
- The Balance SMB – What is the contribution margin? – A simple explanation of the contribution margin with some examples.
- HubSpot Blog – Contribution Margin Explained in 200 Words (and how to calculate it) – A quick explanation of contribution margin.