What contribution means
Contribution is selling price minus variable cost. Each sale contributes that amount towards fixed costs and then profit.
Use it for break-even
Fixed costs divided by contribution per sale gives the approximate number of sales required to break even.
Use it for decisions
Contribution is useful when assessing discounts, capacity and whether incremental sales are economically worthwhile.
ProfitMaths guides provide general educational information, not personalised accounting, tax, legal or financial advice.