The formula, without the mystery.
Unit contribution = price − variable cost; total contribution = units × unit contribution; operating profit = total contribution − fixed costs
A worked example
At a price of 50 and variable cost of 20, unit contribution is 30 and contribution margin is 60%. Selling 200 units gives 6,000 contribution; after 1,000 fixed costs, operating profit is 5,000.
How does contribution differ from gross profit?
Contribution includes every variable cost, which may include payment fees, commissions and delivery. Gross profit depends on your cost-of-sales classification. Use explicit cost definitions rather than treating the two measures as interchangeable.
Keep the assumptions consistent
Use one planning period and one currency. Enter amounts consistently excluding sales tax or VAT. These simplified models do not account for uncertainty, inventory limits, working capital or progressive taxes. Results are planning estimates.
Why a 50% markup is not a 50% margin
How to calculate profit margin without mixing up costs
How to calculate e-commerce profit after fees
How to set profitable prices with explicit volume assumptions
Revenue vs profit: why higher sales can leave less money