Contribution Margin Concept

Contribution margin corresponds to the amount by which a company’s income exceeds its variable costs. The same concept can be applied to a product or a service, meaning in this case the amount by which the product or service sell price exceeds the correspondent production variable costs.

Thus defined, the contribution margin can be understood with the amount of money that the company has available to cover its fixed costs and obtain profits. From the moment that the contribution margin overcomes the fixed costs, the company begins to have profits.

 

 

Translated from Portuguese by Susana Saraiva, Portuguese-English and English-Portuguese translation specialist. Contact: spams@sapo.pt.