What is contribution margin?
Contribution margin is revenue minus variable costs: what each sale contributes toward fixed costs and profit. Variable costs rise and fall with volume, such as materials, hourly field labor and commissions. Fixed costs such as rent, office staff and software stay put. Contribution margin shows how much each extra job helps pay for them.
Why it matters to a revenue leader
Contribution margin is the number to use when deciding whether a deal is worth taking at a lower price. A job that covers its variable costs and adds some contribution can make sense when crews are idle; the same job crowds out better work when the schedule is full. It also explains why the last deals in a period matter so much: once fixed costs are covered, each additional dollar of contribution falls to profit.
How to calculate it
Contribution margin = revenue minus variable costs. Contribution margin ratio = contribution margin divided by revenue. A common mistake is treating costs as fixed when they move with volume, such as overtime or subcontracted labor.
Example
Fictitious numbersA facility services branch bills $80,000 a month under a janitorial contract. Hourly labor, supplies and commission on the contract cost $52,000 a month. Contribution margin is $28,000 a month, a 35 percent ratio, which goes toward the branch's fixed costs and profit.
"Which of our low-price deals still add contribution, and which only add volume?"
Sources
- Contribution Margin (Corporate Finance Institute) checked 9 Oct 2026