Contribution Margin Formula: How to Determine Your Most Profitable Product

Sound investing and successful businesses depend on data to make decisions. Having sales determines if there is a demand for a product.

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What is Contribution Margin?

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Contribution margin definition is the difference between revenue and variable costs (sales revenue – variable costs).

This definition is different from net income, which takes into account net sales, variable costs, and fixed costs.

Fixed costs are expenses that do not fluctuate in prices or are a one-time-only expense.

What are Fixed Costs?

These expenses affect the net operating income, they are not accounted for when determining the contribution margin.

The fixed costs do not directly impact the number of products or units sold.

As the name implies, variable costs include expenses that can fluctuate in prices, not necessarily consistent.

What are Variable Costs?

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