The contribution margin ratio measures how much of each sale is available to cover fixed costs and generate profit. It is one of the most important metrics in pricing, business strategy, and financial planning.
By comparing your selling price to your variable costs, this calculator shows the percentage of revenue that contributes to your business’s profitability. A higher contribution margin ratio means your business retains more money from each sale.
This metric is especially useful for ecommerce businesses, service providers, and product-based companies where costs vary and pricing decisions directly impact profit.
Your contribution margin shows how much money from each sale is left after covering variable costs. The ratio expresses this as a percentage of your selling price.
For example, a 40% contribution margin means that £0.40 from every £1 of revenue goes toward covering fixed costs and profit. The remaining 60% is consumed by variable costs.
A higher contribution margin ratio improves profitability and reduces the amount of revenue needed to break even.
Formula:
Contribution = Price − Variable Cost
Contribution Margin Ratio = Contribution ÷ Price × 100
This calculation shows how efficiently your pricing structure converts revenue into profit potential.
Improving your contribution margin ratio directly reduces your break-even point and increases overall profitability.
Example 1:
Price = £50, Cost = £30
Contribution = £20
Margin = 40%
Example 2:
Price = £18, Cost = £9
Contribution = £9
Margin = 50%
Example 3 (Ecommerce):
Price = £25, Cost = £15
Margin = 40%
This means £10 from each sale contributes to covering fixed costs and profit.
It is the percentage of revenue left after variable costs.
Yes, a higher margin means more profit per sale.
Higher margins reduce the revenue required to break even.