Contribution Margin



Next video:
Loading the player...

Contribution margin is the difference between sales revenue and variable cost. It allows a company to determine the profitability of individual products by measuring how sales affect profits. In its ratio form, it is calculated as Contribution Margin ÷ Sales Revenue.

While revenue from a company’s product is how much money the company makes from selling that item, a product’s variable costs include those expenses that vary depending on the company’s production volume.

 

Related Articles
  1. Investing Basics

    Selling, General & Administrative Expenses (SG&A)

    Selling, general and administrative expenses (SG&A) are a company's total direct and indirect costs from selling its product or service as well as its total general and administrative expenses. ...
  2. Fundamental Analysis

    The Operating Leverage And DOL

    Operating leverage tells investors about the relationship between a company's fixed and variable costs. The higher a company's fixed costs in relation to its variable costs, the greater its operating ...
  3. Fundamental Analysis

    Reading The Inventory Turnover

    Inventory turnover is a ratio that shows how quickly a company uses up its supply of goods over a given time frame. Inventory turnover may be calculated as the market value of sales divided by ...
  4. Investing

    Calculating Net Income

    Otherwise known as the "bottom line", net income is the most commonly used indicator of a company's profitability. Learn more about how it an investor's decision to own or sell a stock.
  5. Investing

    Examining Costs Of Goods Sold (COGS)

    Learn more about the costs that go into production.
  6. Technical Indicators

    Key Financial Ratios to Analyze Airline Companies

    Examine some of the most important financial ratios and performance metrics investors use to evaluate companies in the airline industry.
  7. Technical Indicators

    Key Financial Ratios to Analyze Tech Companies

    Understand the technology industry and the companies that operate in it. Learn about the key financial ratios used to analyze tech companies.
  8. Technical Indicators

    Key Financial Ratios to Analyze the Hospitality Industry

    Understand the hospitality industry and the types of companies that operate within it. Learn about key financial ratios used to analyze the industry.
  9. Fundamental Analysis

    Understanding the EBITDA/EV Multiple

    The EBITDA/EV multiple is a financial ratio that measures a company’s return on investment.
  10. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!