Contribution Margin Calculator
When capacity is the constraint, the most profitable product is rarely the one with the best margin. This ranks by contribution per hour of the bottleneck.
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How it works
Contribution margin is what a sale leaves behind after variable costs, before fixed costs. Ranking products by contribution alone works only when you can sell everything you make.
The moment something is scarce — machine hours, consultant days, shelf space — the right measure changes to contribution per unit of that constraint. A product with a lower margin that moves through the bottleneck three times as fast earns considerably more per available hour, and businesses routinely prioritise the wrong one.
Contribution = price − variable cost · Per constraint = contribution ÷ constraint units used
- Contribution — what each sale contributes towards fixed costs and profit
- Constraint — the scarce resource — machine hours, labour hours, floor space
- Per constraint — the ranking measure when capacity is limited
Worked example
Product A at 2,400 with 900 variable cost taking 6 hours; Product B at 1,100 with 500 cost taking 1.5 hours
Inputs
Results
A looks better on both contribution and margin. B earns 60% more per hour of the bottleneck, and is the right product to prioritise while capacity is scarce.
Frequently asked questions
How is this different from gross margin?
Gross margin deducts all cost of goods sold, including fixed production costs. Contribution margin deducts only genuinely variable costs, which makes it the right tool for short-run decisions where the fixed costs are already committed.
What if I have no capacity constraint?
Then set the constraint hours equal for both products and rank on contribution alone. The per-constraint measure only changes the answer when something is genuinely scarce.
Should I stop selling the lower-ranked product?
Only if the constraint is truly binding and the higher-ranked product can absorb the freed capacity. Any product with a positive contribution is better than idle capacity — the ranking decides priority, not survival.
Is my data sent anywhere?
No. The calculation runs entirely in your browser. Nothing you type is transmitted to us or stored.
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