The next sale should help cover the fixed cost base.
Contribution per unit subtracts all variable costs from the unit’s selling price. It is the amount available to cover fixed costs and then generate profit. Variable costs can include payment fees, commissions, shipping and usage costs.
Contribution margin differs from accounting gross margin when COGS contains fixed costs or variable selling costs sit outside COGS. Define the cost scope before comparing products or channels.
The formula, made clear.
- Variable cost
- Incremental costs that scale with each unit sold.
- Total contribution
- Contribution per unit multiplied by units sold, before fixed costs.
Put the numbers in context.
$200.00 price less $40.00 variable cost leaves $160.00 per unit, an 80% contribution margin. One thousand units contribute $160,000.00.
| Input | Example value |
|---|---|
| Revenue per unit | $200.00 |
| Variable cost per unit | $40.00 |
| Units sold | 1,000 units |
| Contribution per unit | $160.00 |
What this calculation assumes
Constant price, variable cost and sales mix. No volume discounts or capacity steps. Zero price yields an undefined margin, though absolute contribution is still shown.
What to consider next.
Use contribution per unit with fixed costs to compute break-even volume.
How we approach financial models →