The maker's costing glossary
Contribution Margin
What each sale contributes toward fixed costs and profit.
Contribution margin is the price of a unit minus its variable cost. It's the money each sale 'contributes' first to covering your fixed costs, and — once those are covered — to profit. It's the engine behind break-even and one of the most useful numbers for deciding which products to push.
Why it matters
Contribution margin tells you which products actually move the needle. A high-priced item with heavy variable costs may contribute less than a modest one that's cheap to make. When you're deciding what to promote, discount, or drop, contribution margin — not price or even gross margin — is often the right lens.
How to calculate it
Subtract the variable cost per unit (materials, per-unit labor, per-unit machine) from the selling price. Fixed costs don't enter here — that's the point.
Contribution margin = price − variable cost per unit
Example
A $34 coaster set has $19 of variable cost, so it contributes $15 per sale toward fixed costs and profit. Sell enough to cover fixed costs and every further $15 is pure profit.
In practice
When makers rank their line by contribution margin, the 'prestige' product is sometimes near the bottom and a humble one near the top — which changes what they choose to make more of.
Common mistakes
- Including fixed costs in the per-unit figure — they belong in break-even, not here.
- Chasing high price instead of high contribution.
- Discounting a low-contribution item to 'move volume' and losing more money faster.
How CrafterBy handles it
Because CrafterBy separates a product's variable costs cleanly, its contribution toward your fixed costs is easy to see and compare across your range.