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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.
To calculate breakeven in dollars, divide its fixed expenses by the contribution margin ratio of 60% ($60,000/.6 = $100,000). This means that the company has to make $100,000 in sales to breakeven. The contribution margin ratio is an important financial metric to calculate the profit potential for a business firm.If the dollar amount of sales increases by one dollar, in this example, the contribution margin increases by 60 cents.he contribution margin ratio is the contribution margin as a percentage of total sales. Use the following formula to calculate the contribution margin ratio: Contribution Margin Ratio = Contribution Margin/Sales. Here is an example using break-even analysis :