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Contribution Margin Ratio | Contribution Margin Formula. The contribution margin ratio is the difference between a company's sales and variable expenses, expressed as a percentage. The total margin generated by an entity represents the total earnings available to pay for fixed expenses and generate a profit.o calculate the contribution margin ratio, divide the contribution margin by sales. The contribution margin is calculated by subtracting all variable costs from sales.
In business, a product's contribution margin measures the amount of revenue left over once you have paid the variable costs related to the product itself. Variable costs often change depending on sales volume, so a contribution margin analysis helps managers determine how to set their prices and sales goals to ...