contribution margin ratio definition for dummies
The contribution margin ratio is the difference between a company's sales and variable expenses, expressed as a percentage. The total margin generated by an entity represents the total earnings available to pay for fixed expenses and generate a profit.
Contribution margin ratio measures the percentage of sales that would increase net income. To calculate it, divide contribution margin by sales, either in total or per unit: Suppose a gadget selling for $100 per unit brings in $40 per unit of contribution margin.