📈 Metrics

Contribution margin

What each extra unit adds towards covering fixed costs.

Formula

Contribution margin = Price − Variable cost per unit

Contribution margin is price minus the variable cost of one unit. It tells you how much each sale ‘contributes’ to paying fixed costs and then profit.

It's the key number behind break-even and pricing decisions.

🧮 Example

A pizza sells for ₹400; dough, toppings and delivery cost ₹250. Contribution = ₹150 per pizza.

🎯 Interview tip

Negative contribution margin means every sale loses money — growth makes it worse, not better.

Used in

Consulting casesOperations casesProduct Strategy cases

Learn next

Break-even point

How much you must sell before you stop losing money.

Fixed vs variable costs

Costs that stay put vs costs that grow with sales.

Unit economics

Does the business make money on one order, one customer, one ride?

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