Contribution Margin

The contribution margin is a measure of the amount of revenue that is left over after all variable costs are paid. This can be seen as the amount of money that is available to cover fixed costs and generate profit.

The formula for contribution margin is (Selling Price - Variable Costs) / Selling Price. 

For example, if a company produces widgets and sells them for $100 each. The variable costs associated with each widget are $60. This leaves a contribution margin of $40 for each widget sold. The contribution margin would be (100-60)/100 or 40%.