We’re fluent in startup finance. Now you can be too.

Learn more about common financial (and startup) terms here. To learn more about Pilot, fill out the form below.

Oops! Something went wrong while submitting the form.
Glossary
  >  
Contribution Margin

What is Contribution Margin?

Contribution margin is a company’s or product’s line revenue minus variable expenses. Your contribution margins can be a factor in deciding which products or services to invest in and which to discontinue. 

Your company’s contribution margin isn’t on your financial statement, but you can calculate it once you separate your fixed and variable expenses. It can be difficult as variable expenses can include expenses from your cost of goods sold (COGS) and operating expenses (OPEX). They’re variable in the sense that they depend on how many units you sell, not whether they might change from one month to the next. 

For example, depending on your business, utilities may be a fixed expense if increasing or decreasing production doesn’t impact your utility bills. However, raw materials, online advertising, and sales commissions could all be variable expenses.

A positive contribution margin means you’re making more money than you spend per unit you sell. You still need to make enough to cover your fixed expenses before you earn a profit. If you have a negative contribution margin, you’re losing money on each unit you sell. You may want to stop the sales altogether or look for a way to increase the contribution margin. 





Need help with other finance or startup questions?

Pilot provides bookkeeping, CFO, and tax services for literally thousands of startups and growing businesses. We've successfully processed over 10 million transactions for our customers and have unparalleled expertise when it comes to helping businesses succeed.

We're the largest startup-focused accounting firm in the United States, and we'd love to help you. To talk to an expert on our team and find out what Pilot can do for you, please click "Talk to an Expert" below, or email us at info@pilot.com.

See what Pilot can do for you

Get the peace of mind that comes from partnering with our experienced finance team.

Oops! Something went wrong while submitting the form.