Contribution Margin Calculator: Profit on Every Sale

What does a margin ratio of 40.00% mean?

On the defaults — $500,000 of total revenue and $300,000 of total variable costs — the contribution margin is $200,000.00 and the margin ratio is 40.00% (ratio decimal 0.4000), which means 40 cents of every revenue dollar is left to cover fixed costs and then profit. The contribution margin is $500,000.00 − $300,000.00 = $200,000.00, and the ratio is $200,000.00 ÷ $500,000.00 = 40.00%. The variable cost ratio is $300,000.00 ÷ $500,000.00 = 60.00%. A ratio of 40.00% means the business keeps two-fifths of every revenue dollar after variable costs and spends three-fifths on the variable costs themselves — for every $100 of revenue, $40 is left for fixed costs and profit and $60 goes to variable costs. Whether that is comfortable or thin depends on the fixed costs and on how steady the revenue is — a 40.00% ratio against low fixed costs is the usual line where a business starts to breathe, and the same 40.00% against heavy fixed costs still leaves the business short if revenue slips.

Three things about the model are worth stating plainly.

First, the division is $200,000.00 ÷ $500,000.00 = 40.00%, and the ratio decimal is 0.4000 — the percent and the decimal are two outputs, never the same number. Second, the meaning is 40 cents of every revenue dollar is left to cover fixed costs and then profit — the amount left after variable costs alone, not the profit and not the gross profit. And third, the ratio is displayed as a percent to two decimals, half-up, and a ratio that displays as 40.00% can sit a hair below or above the displayed figure: $499,999.50 of revenue and $300,000 of variable costs gives 39.999940%, which displays as 40.00%, and $734,567.89 of revenue and $512,345.67 of variable costs gives 30.252101%, which displays as 30.25% — all listed in Accuracy & limitations.

The worked example, line by line

Setup: total revenue $500,000, total variable costs $300,000.

Line 1 — the contribution margin. $500,000.00 − $300,000.00 = $200,000.00.

Line 2 — the ratio. $200,000.00 ÷ $500,000.00 = 40.00% (unrounded 40.000000%; ratio decimal 0.4000).

Line 3 — the variable cost ratio. $300,000.00 ÷ $500,000.00 = 60.00%.

Line 4 — the check. At $600,000 of total revenue the ratio is 50.00%; and at $599,999 it is 49.999917% — below 50.00%.

Every branch, checked

Revenue $400,000: total revenue $400,000.00; total variable costs $300,000.00; contribution margin $100,000.00; margin ratio 25.00% (ratio decimal 0.2500); variable cost ratio 75.00% — With $400,000 of total revenue the ratio falls to 25.00%.

Revenue $600,000: total revenue $600,000.00; total variable costs $300,000.00; contribution margin $300,000.00; margin ratio 50.00% (ratio decimal 0.5000); variable cost ratio 50.00% — With $600,000 of total revenue the ratio rises to 50.00%.

Variable costs $200,000: total revenue $500,000.00; total variable costs $200,000.00; contribution margin $300,000.00; margin ratio 60.00% (ratio decimal 0.6000); variable cost ratio 40.00% — With $200,000 of total variable costs the ratio rises to 60.00%.

Variable costs $400,000: total revenue $500,000.00; total variable costs $400,000.00; contribution margin $100,000.00; margin ratio 20.00% (ratio decimal 0.2000); variable cost ratio 80.00% — With $400,000 of total variable costs the ratio falls to 20.00%.

Revenue $750,000: total revenue $750,000.00; total variable costs $300,000.00; contribution margin $450,000.00; margin ratio 60.00% (ratio decimal 0.6000); variable cost ratio 40.00% — With $750,000 of total revenue the ratio rises to 60.00%.

Variable costs $250,000: total revenue $500,000.00; total variable costs $250,000.00; contribution margin $250,000.00; margin ratio 50.00% (ratio decimal 0.5000); variable cost ratio 50.00% — With $250,000 of total variable costs the ratio rises to 50.00%.

Revenue $1,000,000: total revenue $1,000,000.00; total variable costs $300,000.00; contribution margin $700,000.00; margin ratio 70.00% (ratio decimal 0.7000); variable cost ratio 30.00% — With $1,000,000 of total revenue the ratio rises to 70.00%.

Variable costs $350,000: total revenue $500,000.00; total variable costs $350,000.00; contribution margin $150,000.00; margin ratio 30.00% (ratio decimal 0.3000); variable cost ratio 70.00% — With $350,000 of total variable costs the ratio falls to 30.00%.

The reverses, worked backwards

Smallest revenue for the ratio to REACH 50%: At the displayed $600,000 the figures are total revenue $600,000.00; total variable costs $300,000.00; contribution margin $300,000.00; margin ratio 50.00% (unrounded 50.000000%) (ratio decimal 0.5000); variable cost ratio 50.00%. At $599,999 the ratio is 49.999917% unrounded — below the target, though it displays as 50.00% — so $600,000 is the smallest revenue for the ratio to REACH 50%.

Largest variable costs for the ratio to STAY at or above 45%: At the displayed $275,000 the figures are total revenue $500,000.00; total variable costs $275,000.00; contribution margin $225,000.00; margin ratio 45.00% (unrounded 45.000000%) (ratio decimal 0.4500); variable cost ratio 55.00%. At $275,001 the ratio is 44.999800% unrounded — below the target — and at $274,999 the ratio is 45.000200% unrounded — above the target — so $275,000 is the largest variable costs for the ratio to STAY at or above 45%.

Smallest revenue for the ratio to REACH 60%: At the displayed $750,000 the figures are total revenue $750,000.00; total variable costs $300,000.00; contribution margin $450,000.00; margin ratio 60.00% (unrounded 60.000000%) (ratio decimal 0.6000); variable cost ratio 40.00%. At $749,999 the ratio is 59.999947% unrounded — below the target, though it displays as 60.00% — so $750,000 is the smallest revenue for the ratio to REACH 60%.

Largest variable costs for the ratio to STAY at or below 25%: At the displayed $375,000 the figures are total revenue $500,000.00; total variable costs $375,000.00; contribution margin $125,000.00; margin ratio 25.00% (unrounded 25.000000%) (ratio decimal 0.2500); variable cost ratio 75.00%. At $374,999 the ratio is 25.000200% unrounded — above the target, though it displays as 25.00% — so $375,000 is the largest variable costs for the ratio to STAY at or below 25%.

Largest revenue for the ratio to STAY at or below 40%: At the displayed $500,000 the figures are total revenue $500,000.00; total variable costs $300,000.00; contribution margin $200,000.00; margin ratio 40.00% (unrounded 40.000000%) (ratio decimal 0.4000); variable cost ratio 60.00%. At $500,001 the ratio is 40.000120% unrounded — above the target, though it displays as 40.00% — so $500,000 is the largest revenue for the ratio to STAY at or below 40%.

Largest variable costs for the ratio to STAY at or above 30%: At the displayed $350,000 the figures are total revenue $500,000.00; total variable costs $350,000.00; contribution margin $150,000.00; margin ratio 30.00% (unrounded 30.000000%) (ratio decimal 0.3000); variable cost ratio 70.00%. At $350,001 the ratio is 29.999800% unrounded — below the target — and at $349,999 the ratio is 30.000200% unrounded — above the target — so $350,000 is the largest variable costs for the ratio to STAY at or above 30%.

A warning about the neighbours: every neighbour above sits one dollar from the star, and every neighbour ratio is a hair below or above the target even though it displays as the target — a one-dollar move in revenue or variable costs moves the percent by about 0.00004 points, so the displayed two-decimal figure cannot tell the star from its neighbour. The page prints the unrounded six-decimal percent in full so the rounding does not mislead you: 50.000000, 49.999917, 45.000000, 44.999800, 45.000200, 60.000000, 59.999947, 25.000000, 25.000200, 40.000000, 40.000120, 30.000000, 29.999800, 30.000200.

What the defaults assume

The defaults are $500,000 of total revenue and $300,000 of total variable costs — total revenue $500,000.00; total variable costs $300,000.00; contribution margin $200,000.00; margin ratio 40.00% (ratio decimal 0.4000); variable cost ratio 60.00%. With Revenue $400,000, total revenue $400,000.00; total variable costs $300,000.00; contribution margin $100,000.00; margin ratio 25.00% (ratio decimal 0.2500); variable cost ratio 75.00%. With Revenue $600,000, total revenue $600,000.00; total variable costs $300,000.00; contribution margin $300,000.00; margin ratio 50.00% (ratio decimal 0.5000); variable cost ratio 50.00%. With Variable costs $200,000, total revenue $500,000.00; total variable costs $200,000.00; contribution margin $300,000.00; margin ratio 60.00% (ratio decimal 0.6000); variable cost ratio 40.00%. With Variable costs $400,000, total revenue $500,000.00; total variable costs $400,000.00; contribution margin $100,000.00; margin ratio 20.00% (ratio decimal 0.2000); variable cost ratio 80.00%. With Revenue $750,000, total revenue $750,000.00; total variable costs $300,000.00; contribution margin $450,000.00; margin ratio 60.00% (ratio decimal 0.6000); variable cost ratio 40.00%. With Variable costs $250,000, total revenue $500,000.00; total variable costs $250,000.00; contribution margin $250,000.00; margin ratio 50.00% (ratio decimal 0.5000); variable cost ratio 50.00%. With Revenue $1,000,000, total revenue $1,000,000.00; total variable costs $300,000.00; contribution margin $700,000.00; margin ratio 70.00% (ratio decimal 0.7000); variable cost ratio 30.00%. With Variable costs $350,000, total revenue $500,000.00; total variable costs $350,000.00; contribution margin $150,000.00; margin ratio 30.00% (ratio decimal 0.3000); variable cost ratio 70.00%. With All zero, total revenue $0.00; total variable costs $0.00; contribution margin ratio undefined — no revenue, no variable costs, and the ratio is undefined. With Revenue $250,000, variable costs $150,000, total revenue $250,000.00; total variable costs $150,000.00; contribution margin $100,000.00; margin ratio 40.00% (ratio decimal 0.4000); variable cost ratio 60.00% — 40 cents of every revenue dollar is left after variable costs. With Fractional inputs (ratio unrounded 39.999940%), total revenue $499,999.50; total variable costs $300,000.00; contribution margin $199,999.50; margin ratio 40.00% (unrounded 39.999940%) (ratio decimal 0.4000); variable cost ratio 60.00% — the ratio displays as 40.00%. With Revenue $2,000,000, variable costs $1,200,000, total revenue $2,000,000.00; total variable costs $1,200,000.00; contribution margin $800,000.00; margin ratio 40.00% (ratio decimal 0.4000); variable cost ratio 60.00% — the same ratio at four times the size. With Variable costs $0, total revenue $500,000.00; total variable costs $0.00; contribution margin $500,000.00; margin ratio 100.00% (ratio decimal 1.0000); variable cost ratio 0.00% — no variable costs at all, a real figure, not undefined. With Revenue $0, total revenue $0.00; total variable costs $300,000.00; contribution margin ratio undefined — no revenue to divide by. With Negative variable costs, total revenue $500,000.00; total variable costs −$10,000.00; contribution margin $510,000.00; margin ratio 102.00% (ratio decimal 1.0200); variable cost ratio −2.00% — the ratio is above 100%, a real figure. With Small numbers, total revenue $10,000.00; total variable costs $6,000.00; contribution margin $4,000.00; margin ratio 40.00% (ratio decimal 0.4000); variable cost ratio 60.00% — 40 cents of every revenue dollar is left after variable costs. With Fractional inputs (ratio unrounded 30.252101%), total revenue $734,567.89; total variable costs $512,345.67; contribution margin $222,222.22; margin ratio 30.25% (unrounded 30.252101%) (ratio decimal 0.3025); variable cost ratio 69.75% — the ratio displays as 30.25%. With Over 100% (variable costs bigger than the revenue), total revenue $500,000.00; total variable costs $550,000.00; contribution margin −$50,000.00; margin ratio −10.00% (ratio decimal −0.1000); variable cost ratio 110.00% — the variable costs are bigger than the revenue. With Revenue $350,000, variable costs $175,000, total revenue $350,000.00; total variable costs $175,000.00; contribution margin $175,000.00; margin ratio 50.00% (ratio decimal 0.5000); variable cost ratio 50.00% — half of every revenue dollar is left after variable costs.

A note on the rounding: the ratio is displayed as a percent to two decimals, half-up. With the fractional inputs the unrounded ratio is 39.999940% — it displays as 40.00% — and with the other fractional inputs it is 30.252101% — it displays as 30.25%. The page prints the unrounded value so the rounding does not mislead you.

Output · formula · meaning

Who uses this

• The small-business owner pricing a product: they learn $500,000 of revenue and $300,000 of variable costs leave a margin of $200,000.00 — a ratio of 40.00% — and they check the $600,000 reverse to see the revenue that lifts the ratio to 50.00%.
• The manager setting a sales target: they learn a ratio of 40.00% means 40 cents of every revenue dollar is left to cover fixed costs — and they check the $275,000 reverse to see how much variable cost keeps the ratio at or above 45.00%.
• The founder reading a P&L: they learn the ratio rises when the revenue rises or the variable costs fall — and they check the $750,000 reverse to see the revenue that lifts the ratio to 60.00%.
• The student learning cost-volume-profit: they learn the margin is the revenue minus the variable costs — and they check the $375,000 reverse to see how much variable cost keeps the ratio at or below 25.00%.

Accuracy & limitations

The math is first-principles: the contribution margin is the total revenue minus the total variable costs, and the margin ratio is the contribution margin divided by the total revenue — all in dollars, the ratio displayed as a percent to two decimals half-up, and as a ratio decimal to four decimals. There IS division in this calculator — at $0 of total revenue and $0 of total variable costs the ratio is UNDEFINED, division by zero, no revenue to divide by — the calculator shows “ratio undefined” with a note, never hides it. The ratio is also undefined when total revenue is $0 for any other reason, for example $0 of revenue against $300,000 of variable costs. At $0 of total variable costs the ratio is 100.00% — a real figure, not undefined — and at negative variable costs the ratio is above 100%: −$10,000 of variable costs against $500,000 of revenue gives 102.00% (unrounded 102.000000%) — a real figure, shown with the U+2212 minus sign. Negative total revenue is NOT meaningful — revenue is never negative — say so plainly and do not treat a negative revenue figure as a real case. With the fractional inputs the unrounded ratio is 39.999940% — it displays as 40.00% — and with the other fractional inputs it is 30.252101% — it displays as 30.25%. What the model cannot do is say whether 40.00% is a good margin: the ratio says nothing about the fixed costs — a 40.00% ratio against low fixed costs is comfortable and the same 40.00% against heavy fixed costs still leaves the business short if revenue slips. It also says nothing about when the fixed costs fall due — the ratio lumps the whole fixed cost into one number. Use it to see what share of every revenue dollar is left after variable costs — then check the gross-profit-margin, net-profit-margin and operating-leverage calculators before you decide the margin is right.

Frequently asked questions