What is Contribution Margin?
Revenue left to cover fixed costs after variable costs.
How to calculate it
Calculate Contribution Margin as: (Revenue − Variable costs) / Revenue × 100. Pull the inputs from your connected data and track the trend over time in your dashboard.
Examples
Example 1
$1M revenue minus $300k variable costs -> 70% contribution margin to cover fixed costs.
Example 2
$1M revenue with $300k of variable costs -> 70% contribution margin, meaning 70 cents of every revenue dollar helps cover fixed costs.
Why it matters
Contribution margin is the revenue left to cover fixed costs after variable costs and drives break-even and scaling decisions. It reveals how much each incremental sale contributes toward profitability. Misclassifying fixed costs as variable, or vice versa, distorts it and can lead to poor pricing decisions.
Benchmark context
Higher contribution margins enable faster paths to profitability; benchmark against your industry's typical cost structure.
Common pitfalls
Misclassifying fixed vs variable costs.
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