Contribution margin

Price minus variable cost per unit, where the unit is a widget, an engagement or a billable hour. What each sale contributes toward covering fixed costs.

Contribution margin in round numbers

Hypothetical: a product sells for US$50 per unit and has US$30 of variable cost per unit. Its US$20 contribution margin per unit helps cover fixed costs; it is not net profit.

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Hypothetical contribution per unit; US$
MeasureUS$ per unit
Selling price50
Variable cost30
Contribution margin50 − 30 = 20

Fixed costs · Variable costs · Operating leverage · Incremental margin · All of the glossary