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# What is Contribution Margin?

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Contribution margin is revenue minus variable costs per unit. This is a commonly used financial metric that is used to evaluate the profitability of sales deals and to perform break-even analysis.

## Calculation

Contribution margin represents the amount that a sale contributes to fixed costs. Variable costs include cost of goods sold and any variable business or marketing costs such as customer acquisition costs. It is calculated as:
Contribution margin = revenue per unit - variable costs per unit

## Example

A solar panel company signs a contract to install panels at a commercial location for \$3 million. The panels cost \$1 million USD, installation costs \$1.2 million and the firm incurred \$200,000 in administrative and selling expenses related to the deal for total variable costs of 2.4 million.
Contribution margin = 3 million - 2.4 million = \$600,000
The \$600,000 isn't a profit but it contributes to fixed costs such as research and development and administrative expenses.
 Overview: Contribution Margin Type Definition Revenue minus variable expenses. Related Concepts

## Management Accounting

This is the complete list of articles we have written about management accounting.
Baseline
Benchmarks
Best In Class
Bottleneck
Complexity Cost
Cash Conversion Cycle
Cycle Time
Debottlenecking
Compliance Rate
Employee Productivity
Contribution Margin
Forecasting
Cost Benefit Analysis
Labor Productivity
Cost To Company
Run Rate
Statistical Analysis
Demand Forecasting
Takt Time
Efficiency Formula
Throughput
Internal Benchmarking
Lifecycle Cost Analysis
Machine Efficiency
Net Present Value
Productivity Formula
Productivity Rate
Quantification
Scalability
Target Costing
Theory Of Constraints
Throughput Accounting
Total Cost Of Ownership
Variance Analysis

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