What's left from each sale after covering the variable costs to deliver it. The building block of profitability.
Contribution margin is the amount of revenue left over after subtracting the variable costs directly tied to producing or delivering a product or service. It represents how much each sale “contributes” toward covering fixed costs (rent, salaries, insurance) and ultimately generating profit.
You can express it in dollars per unit or as a percentage of revenue. Both are useful for different decisions.
Contribution margin is the core of unit economics. If your contribution margin is positive, each additional sale brings you closer to covering fixed costs and turning a profit. If it's negative, every sale actually costs you money — and more volume makes things worse, not better.
It's also the key input for calculating your break-even point. Fixed costs divided by contribution margin per unit tells you exactly how many units you need to sell to break even. That math drives pricing decisions, sales targets, and budget planning.
Contribution margin is especially powerful when you compare it across products or services. A consulting firm might have a 70% contribution margin on strategy work but only 30% on execution work. That doesn't mean you drop execution — but it tells you where your real profit engine is.
Example: A DTC brand sells candles for $35 each. Variable costs per candle: $8 materials, $3 packaging, $6 shipping, $4 payment processing = $21 total. Contribution margin = $35 - $21 = $14 per candle, or 40%. If monthly fixed costs are $28K, they need to sell 2,000 candles per month just to break even ($28K / $14).
Contribution Margin (per unit) = Selling Price - Variable Costs per Unit
Contribution Margin Ratio = (Selling Price - Variable Costs) / Selling Price x 100
Variable costs include anything that increases with each additional unit sold: materials, direct labor, shipping, transaction fees, commissions. Fixed costs like rent and salaries are excluded — that's the whole point.
CentSight calculates contribution margin by product, service line, and customer segment using your actual transaction data. It separates variable costs from fixed costs and shows you exactly how much each sale contributes. Ask “What's the contribution margin on our premium plan versus our starter plan?” and get a side-by-side comparison with real numbers, not estimates.
CentSight calculates contribution margin per product and segment so you know where your real profit comes from.
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