Concept in 60 seconds: contribution margin and break-even Contribution margin is what each sale leaves over after variable costs, to cover fixed costs and then profit. Example: you sell a product for $50. Variable cost per unit is $30, so each unit contributes $20. Fixed costs are $40,000 a year. Break-even in units = $40,000 ÷ $20 = 2,000 units. Contribution margin ratio = $20 ÷ $50 = 40%. Break-even in sales = $40,000 ÷ 40% = $100,000. Want a $10,000 profit? Add it to fixed costs: ($40,000 + $10,000) ÷ $20 = 2,500 units. Same logic, every time: cover fixed costs first, then everything e…
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