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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.
Contribution Margin Increase. The contribution margin ratio increases when sales increase. For every $1 increase in sales, profits increase by the contribution margin ratio. For example, if a companyâs contribution margin ratio is 25 percent, it is earning roughly 25 cents in profit for every one dollar in sales.If the contribution margin increases to 35 percent due to increased sales, the company earns 35 cents for every one dollar in sales.f a company has $100 in revenue from sales and $30 in variable expenses, then its contribution margin is $100 - $30 = $70. In this case, the contribution margin ratio is $70 / $100 = .70. Multiply .70 by 100 to change the decimal into a percentage and you get 70 percent.