Free tool
Contribution Margin Calculator
Contribution margin is what is left of your sales once everything that grows with them is paid. It pays your fixed costs, and its ratio gives your break-even point.
Contribution margin is revenue excluding VAT minus variable costs. Its ratio is that margin divided by revenue excluding VAT, multiplied by 100. The break-even point is the revenue that covers fixed costs: fixed costs divided by that ratio.
Your Margin Is Calculated. What About Your Advertising?
The margin ratio sets what a sale can cost in advertising. Your bidding targets follow it, not an industry average.
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How contribution margin is calculated
Contribution margin = Revenue excl. VAT − Variable costs Ratio = Margin ÷ Revenue excl. VAT × 100 Break-even revenue = Fixed costs ÷ Ratio
500,000 € of revenue and 300,000 € of variable costs leave 200,000 €, a 40 % ratio. With 120,000 € of fixed costs, break-even revenue is 300,000 € and profit is 80,000 €.
The ratio also matters for your advertising. At a 40 % contribution margin, each euro of advertising must bring in at least 2.50 € of sales to pay for itself, since 1 ÷ 0.40 = 2.5: that is the minimum ROAS before fixed costs are even covered.
The break-even point calculator works in units sold; this one works in revenue, which suits a business selling many products at different prices.
What the calculation helps you decide
- The revenue to reach to cover your fixed costs, month by month.
- What your advertising can cost: the margin ratio sets the ROAS below which a sale costs more than it brings in.
Frequently asked questions
How do I calculate contribution margin?
Subtract your variable costs from your revenue excluding VAT. For 500,000 € of sales and 300,000 € of variable costs: 500,000 − 300,000 = 200,000 €.
What is the contribution margin ratio?
Contribution margin divided by revenue excluding VAT, multiplied by 100. 200,000 ÷ 500,000 × 100 = 40 %.
How does it relate to the break-even point?
Break-even is the revenue whose contribution margin exactly covers fixed costs: fixed costs ÷ ratio. 120,000 ÷ 0.40 = 300,000 € of revenue.
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