Contribution Margin: What It Is, How To Calculate It, And Why You ...

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SKIP TO CONTENTHarvard Business Review LogoAccountingContribution Margin: What It Is, How to Calculate It, and Why You Need It

by Amy Gallo

October 13, 2017Ross M. Horowitz/Getty Images
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When you run a company, it’s obviously important to understand how profitable the business is. Many leaders look at profit margin, which measures the total amount by which revenue from sales exceeds costs. But if you want to understand how a specific product contributes to the company’s profit, you need to look at contribution margin.

Amy Gallo is a contributing editor at Harvard Business Review, a cohost of the Women at Work podcast, and the author of Getting Along: How to Work with Anyone (Even Difficult People) (Harvard Business Review Press, 2022) and the HBR Guide to Dealing with Conflict(Harvard Business Review Press, 2017). She writes and speaks about workplace dynamics.@amyegallo
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