Contribution Margin

Contribution Margin

Calculation: Sales less the Cost of Sales (COS).

Ratio: Contribution as a percentage of Sales

Contribution is what’s left from the sale to contribute towards paying for the overhead costs and expenses of the business.

This is a real What do you mean by that? term with people sometimes using the two terms interchangeably. We use ‘margin’ to denote a percentage (of Sales).

- Sales of 200 less COS of 80 equals Contribution of 120
- Contribution of 120 divided by Sales of 200 equals Contribution Margin of 60%.

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