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Finance
Contribution Margin
The amount each unit sold contributes toward covering fixed costs and generating profit.
Contribution margin is a key number for decision-making. It helps managers decide whether to accept special orders, set prices, or drop unprofitable products. High contribution margin businesses scale much more easily.
It's how much money each sale leaves behind after paying the direct costs of making it.
Real world: A T-shirt sells for £25 and costs £12 to make and ship. The contribution margin is £13. If fixed costs are £6,500 per month, the business needs to sell 500 T-shirts just to cover fixed costs.
💡 Contribution margin shows you how much each sale really helps the business survive and grow.