The percentage of the selling price that can be used to pay fixed costs. If a product is sold for $1.00 and it costs 70 cents to make the product, 30 cents is the contribution that can be used to pay fixed costs and 30 % or .3 is the contribution margin. 70 cents pays for the variable costs.
Contribution margin analysis is a relatively simple tool afforded by cost/volume/profit analysis. In simplest terms, the contribution margin is total revenue minus total variable cost. This difference can be expressed as a percentage of total revenue.