Every sale has to do two jobs: pay for itself, and pay a little towards the rent. Contribution margin measures the second job — selling price minus all variable costs per unit — and it is the number behind every break-even, every "should we take this order at a discount", and every "how many more do we need to sell to cover the new salesperson". This calculator computes contribution per unit, contribution margin ratio, break-even units and revenue, and the margin of safety, and lets you test price and cost changes instantly.
The formulas
- Contribution per unit = Price − Variable cost per unit.
- Contribution margin ratio = Contribution ÷ Price.
- Break-even units = Fixed costs ÷ Contribution per unit.
- Break-even revenue = Fixed costs ÷ Contribution margin ratio.
- Margin of safety = (Actual sales − Break-even sales) ÷ Actual sales.
A café sells a coffee at ₹150; milk, beans, cup and lid cost ₹45 and the UPI/card fee ₹2 → contribution ₹103 (68.7%). With ₹1,50,000 of monthly fixed costs, break-even is 1,457 coffees a month, about 49 a day. Selling 2,000 a month gives a margin of safety of 27%.
Variable vs fixed
| Variable (per unit or per sale) | Fixed (per month) |
|---|---|
| Materials, purchase cost, packaging | Rent, salaries of permanent staff |
| Payment gateway or MDR fees | Electricity base charge, internet, software |
| Marketplace commission and shipping | Loan EMIs, insurance |
| Sales commission per order | Depreciation |
| Delivery fuel per trip (fuel expense calculator) | Marketing retainers |
Semi-variable costs (electricity for machines, overtime) can be split; when in doubt, treat the portion that rises with volume as variable.
How to use the calculator
- Enter the selling price (excluding GST) and each variable cost per unit — or a variable-cost percentage for fees and commissions.
- Enter monthly fixed costs.
- Read contribution per unit, the ratio, break-even units and revenue.
- Enter current or expected monthly sales to see profit and the margin of safety.
- Try scenarios: a ₹10 price cut, a cheaper supplier, a new fixed cost like a hire (use the loaded figure from the employee cost calculator).
Decisions it answers
- Accept a bulk order at a discount? Yes if the discounted price still exceeds variable cost and you have spare capacity — it adds contribution even below full-cost price. Check spare capacity with the capacity utilization calculator.
- Which product to push? The one with the highest contribution per unit of the scarce resource (shelf space, machine hour, staff hour), not the highest price.
- Drop a product? Only if its contribution is negative or the capacity has a better use — a low-margin product still covering some fixed cost is worth keeping until replaced.
- Raise price or cut cost? A ₹10 price rise adds ₹10 contribution; a ₹10 cost cut adds the same but is often harder — test both here, then run the discount calculator for the customer-facing view.
- Marketplace vs own channel: commission and shipping are variable; the seller pricing workflow shows the contribution per channel.
Multi-product businesses
Compute a weighted contribution margin ratio across your sales mix (each product's ratio × its share of revenue) and divide fixed costs by it for overall break-even revenue. A shift in mix towards high-contribution items lowers break-even without any price change — the quiet lever behind "add-on" selling in cafés and accessory racks in electronics stores.
For marketplace sellers, the fee stack that sits inside variable cost is worked through in Pricing for Amazon, Flipkart and Meesho; for a café or shop starting out, the full cost structure is in How to start a small business in India in 2026.
Related tools
- Profit margin & break-even — gross and net margin with break-even.
- Gross margin calculator — before variable selling costs.
- Capacity utilization — is there room to take the order?
- Employee cost calculator — the fixed cost of a hire.
- Budget variance — track fixed costs against plan.