Contribution margin shows you the aggregate amount of revenue available after variable costs to cover fixed expenses and provide profit to the company.

A contribution margin is important because it shows how much money is available to pay the fixed costs such as rent and utilities.

**Formula to calculate contribution margin.**

**Example:**

Suppose a company’s total sale were $ 350,000 while the total variable costs was $ 80,000. Calculate the contribution margin.

Thus, the company’s contribution margin is $ 270,000.