Contribution margin
Contribution margin is what remains of sales after deducting variable costs only; it is the amount available to cover fixed costs and leave a profit.
Also calledcontribution margin ratio, unit contribution, katkı payı
Formula
(Net sales − Variable costs) ÷ Net sales × 100- Net sales
- Sales excluding VAT, net of returns and discounts.
- Variable costs
- Costs that rise with volume: cost of goods sold, card fees, online order delivery cost, packaging, sales-linked bonuses.
- Unit contribution
- Unit selling price − Unit variable cost; used for product and category analysis.
Calculator
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Worked example
How to read it, and what good looks like
The whole value of contribution margin rests on splitting variable from fixed cost correctly. Variable cost rises with sales: cost of goods sold, card fees, online order delivery cost, packaging and sales-linked bonuses. Fixed cost is paid even with no sales: base rent, salaried staff, depreciation, insurance. Energy and turnover rent are semi-variable; the fixed part goes to fixed cost and the sales-linked part to variable cost.
That is where it differs from gross margin. Gross margin deducts only product cost; contribution margin deducts the full variable cost of making the sale. A product sold in a branch at a 38% gross margin sells at a 20% contribution through online orders whose picking and delivery cost comes to 18% of sales. Channel, promotion and product decisions are therefore made on contribution. Break-even follows directly: Fixed costs ÷ Contribution margin ratio.
Track contribution monthly by product, category and channel, and review the price, purchase terms or channel of any line whose ratio falls. In Mindpera, Mind Cost calculates gross margin by product and category on both costing methods and allocates freight, customs and other landed cost into product cost; contribution is built from that base by deducting variable costs. Where card fee and delivery data sit in separate systems, installation connects them to the same model.
Where it misleads
- Salaried staff and base rent are booked as variable cost, contribution looks low and a profitable line is dropped for no reason.
- Card fees and delivery cost are left out of variable cost, so the online order channel reads as if it contributes as much as the branch.
- Contribution amount and ratio are confused: a low-ratio product that sells in volume tops the total contribution, and a ranking by ratio hides it.
Data you need
- Sales invoices and POS sales lines (excl. VAT)
- Purchase cost by product
- Card fees and delivery costs by channel
- Fixed, variable and semi-variable classification of cost accounts
Mindpera products that calculate this KPI
Frequently asked questions
- What is the difference between contribution margin and gross profit?
- Gross profit deducts only the cost of goods sold from sales. Contribution margin deducts every cost that rises with sales: card fees, delivery, packaging and sales-linked bonuses on top of product cost. Contribution is therefore always lower than or equal to gross profit. Channels and promotions are compared on contribution, not on gross margin.
- How is unit contribution calculated?
- Subtract unit variable cost from the unit selling price excluding VAT. A product selling at TRY 250 with a TRY 185 purchase cost and TRY 5 of card fees and packaging has a unit contribution of TRY 60, a 24% ratio. Category management classifies products on this amount and on volume, reading total contribution and units sold together.
- How do you find break-even with contribution margin?
- Divide fixed costs by the contribution margin ratio. A store with TRY 200,000 monthly fixed costs and a 29% contribution ratio breaks even at TRY 689,655 of sales. Below that level every sale contributes to fixed costs but leaves no profit. The same calculation works in units using unit contribution: Fixed costs ÷ Unit contribution.