![]() The small difference between contribution margin and gross profit margin are the fixed costs included in a company's cost of goods sold because contribution margin only considers the revenue after variable costs. ![]() Cost of goods sold includes all expenses - variable and fixed - that contributed directly to the cost of producing a product or providing a service. Gross profit margin represents revenue left over after subtracting the cost of goods sold from total sales. Don't Confuse Contribution Margin with Gross Profit Margin - Know the Difference It is simpler to judge financial performance, at a glance, using the contribution margin ratio than it is using the contribution margin figure. The contribution margin can also be expressed as a percentage, called the contribution margin ratio, which expresses the figure as a percentage of total revenue. Essentially, a contribution margin (calculated for a business as a whole or for specific products and services) represents the business's break-even point. The contribution margin is the remaining revenue that can be put toward covering fixed costs and reinvesting in the business. The contribution margin represents the amount of revenue remaining in a business after all variable costs have been subtracted. To truly understand your business's financials, learn what contribution margin is, how you calculate it, and what the number means for your business's ability to grow and expand. Many business owners, unfortunately, overlook contribution margin or do not fully understand what it represents. Gross profit is an important key performance indicator (KPI) to track, but so is the contribution margin. ![]()
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