Contribution Margin Calculator and Break-Even Units
Enter a selling price, the variable cost per unit, units sold and fixed costs to see how much each sale contributes toward overheads and profit. It also shows the break-even point in units and in sales revenue, using only costs that change with volume.
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Formula
Contribution margin per unit = price − variable cost per unitContribution margin ratio = contribution margin per unit ÷ priceTotal contribution margin = contribution margin per unit × units soldProfit = total contribution margin − fixed costsBreak-even units = fixed costs ÷ contribution margin per unit(rounded up)Break-even revenue = fixed costs ÷ contribution margin ratio
Worked example
Price 50, variable cost 30, 1,000 units sold, fixed costs 8,000:
- Per unit: 50 − 30 = 20; ratio 20 ÷ 50 = 40%
- Total: 20 × 1,000 = 20,000; profit 20,000 − 8,000 = 12,000
- Break-even: 8,000 ÷ 20 = 400 units, or 8,000 ÷ 0.40 = 20,000 in revenue
Another example
Price 120, variable cost 78, fixed costs 21,000.
- Per unit: 120 − 78 = 42; ratio 42 ÷ 120 = 35%.
- Break-even: 21,000 ÷ 42 = 500 units, or 21,000 ÷ 0.35 = 60,000 in revenue.
When to use it
Use it for pricing, discount and volume decisions: it shows how many extra units a price cut must sell to keep the same total contribution. Products with high fixed costs need a high ratio to break even at a realistic volume.
Common mistakes
- Putting fixed costs, such as rent or salaried staff, into variable cost.
- Forgetting variable costs that scale with sales: commissions, card fees, packaging and shipping.
- Reading the ratio as profit. It is what is left before fixed costs.
How it differs
The general break-even calculator solves for the point where revenue equals costs. This page focuses on the per-unit contribution and ratio behind that point. The profit margin calculator divides profit, after fixed costs, by revenue, so its figure is lower.
Frequently asked questions
What is contribution margin?
It is the part of each sale left after variable costs, which goes toward fixed costs and profit. At a price of 50 and a variable cost of 30, the contribution margin is 20 per unit. If the variable cost is above the price the margin is negative: each sale loses money and break-even is never reached.
How do I find the contribution margin ratio?
Divide the contribution margin per unit by the price. 20 ÷ 50 = 0.40, so the ratio is 40%: each sale covers 40 cents of fixed costs and profit per dollar.
How do I calculate break-even units and revenue?
Break-even units = fixed costs ÷ contribution margin per unit, rounded up. With 8,000 of fixed costs and 20 per unit, that is 400 units, or 20,000 in revenue (8,000 ÷ 0.40).
How is this different from gross margin?
Gross margin subtracts all cost of goods sold, which can include fixed production overhead. Contribution margin subtracts only costs that change with each unit sold, so it suits pricing and volume decisions.
What is the contribution margin formula in Excel?
Use =price-variable_cost for the margin per unit and =(price-variable_cost)/price for the ratio. For a price of 120 and a variable cost of 78 these give 42 and 0.35, or 35%. Break-even units are =ROUNDUP(fixed_costs/(price-variable_cost),0), which gives 500 with 21,000 of fixed costs.
What is a good contribution margin ratio?
It depends on the industry, so there is no fixed benchmark. As a rough rule of thumb, many businesses aim for 40% or more, with software and digital goods often much higher and low-margin retail or distribution lower. What matters is whether the ratio covers your fixed costs at a realistic volume.
What is the difference between contribution margin and profit margin?
Contribution margin subtracts only variable costs; profit margin subtracts all costs, including fixed ones. Selling 1,000 units at 50 with 30 of variable cost and 8,000 of fixed costs gives a contribution ratio of 40% but a profit margin of 12,000 ÷ 50,000 = 24%.