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Also known as: CM, variable margin

Contribution Margin

ConceptualFinanceMetrics

Definition

Contribution Margin: Contribution margin is revenue minus variable costs, showing how much each sale contributes to covering fixed costs and profit. It's expressed as a dollar amount or percentage. High contribution margin businesses can scale profitably.

Example Usage

“Each $100 sale has $30 in variable costs, giving us a $70 contribution margin (70%).”

Common Misconceptions

Contribution margin equals profit margin. CM doesn't include fixed costs; profit margin does.
All costs are variable. Rent, salaries, and software subscriptions are typically fixed costs.
High CM guarantees profitability. You still need enough volume to cover fixed costs.

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