What is Contribution Margin?
Contribution margin is the amount each unit sold contributes to covering fixed costs after variable costs are deducted. It equals selling price minus variable cost per unit.
How It Works
- Compute contribution per unit and contribution ratio (%).
- Multiply by volume to get total contribution.
- Subtract fixed costs to determine profit.
Saudi Context
Saudi retailers and manufacturers use contribution analysis to set promotional pricing, evaluate SKUs, and decide special export orders, especially under tight SAR-denominated margins.
Example
A product sells for SAR 50 with SAR 30 variable cost — SAR 20 contribution per unit, or 40% contribution ratio.