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**Table of Content**

The contribution margin calculator measures the contribution margin of a product or service, empowering you to gauge your business’s efficiency and maximize profits.

With it, you also get the contributions ratio which helps in determining how you can manufacture products by spending the minimum amount without disturbing the quality standards.Â Â

This is a ratio that reflects the efficiency of a business in terms of covering the variable costs. It is expressed in the form of a percentage.

A higher contribution margin ratio represents that a larger sales revenue is available.Â

The formula that is used to calculate the contribution is outlined below:

**\(CM=\ (SP_{unit}\times U)âˆ’\ (\ VC_{unit}\times\ U)\)**

The formula that is used to calculate the contribution margin ratio is as:

**\(CM_{ratio}=\dfrac{CM} {(SP_{unit}\times U)}\)**

**Where**

- CM represents the contribution margin
- SP is the price of one selling unit
- N is the number of units sold to the client
- VC is the representative of the variable costs per unit

Go through the following steps to calculate the contribution margin:

- First of all, determine the total revenue
- Calculate the Cost of goods sold
- Determine the number of units sold and the fixed costs
- Put these values in the unit contribution margin formula to calculate contribution margin and deduct all costs from sales revenue, as we have done in the following example

Suppose you have created 100,000 units of a product whose

- Selling price per unit = $ 20
- Variable Costs per unit = $10
- Fixed Cost = $8

How to find unit contribution margin, contribution margin ratio, and the contribution profit profit generated from the sale.

**Solution:**

Put the values in the contribution margin unit formula

\(CM=\ (SP_{unit}\times U)âˆ’\ (\ VC_{unit}\times\ U)\)

\(CM=\ (20\times 100,000)âˆ’\ (\ 10\times\ 100,000)\)

CMÂ = $1,000,0000

Put the value of CM in the contribution margin percentage formula

\(CM_{ratio}=\dfrac{1,000,000} {(20\times 100,000)}\)

\(CM_{ratio}= 0.5\times100\)

\(CM_{ratio}= 50\% \)

The calculator measures the difference between the sales price and the variable costs of the product in seconds. Let’s see how it works!

**Selling Price Per Unit:**The amount at which each unit of a product is sold**Variable Cost Per Unit:**The cost of producing one unit of product**Number of Units:**It’s the total quantity of the product**Fixed Costs:**This is the expense that occurs while producing the product

**Contribution Margin:**The portion of sales revenue that is generated by the sold products**Contribution Margin Ratio:**The percentage that helps to understand how much each dollar is contributing to covering the fixed cost**Profit Generated:**The amount that remains behind after subtracting all the expenses

**References:**

investopedia.com: contribution margin.