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What is Contribution Margin? Contribution Margin is a useful concept to analyze the cost structure of your company, to figure out what kind of volumes you need to make your business worthwhile. Contribution Margin. The word margin indicates that it is a term describing profitability. The word contribution in this context means contributing to covering fixed costs. Once Contribution Margin has fully covered fixed costs, a company can turn profitable. To understand Contribution Margin, it is important to understand variable costs and fixed costs first. Variable costs and fixed costs are a simplification of reality that assumes that costs can be categorized in just two categories: they either move up with the number of units sold (which is called variable costs), or they dont (which is called fixed costs). Typical textbook examples of variable costs are materials used in production, factory labor, and electricity needed to run a production machine. Typical textbook examples of fixed cos
