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Contribution Margin

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Definition:

The difference between total sales revenue and total variable costs. The term is can be applied to a product or product lines and is generally expressed as a percentage.

In retail, the Gross Margin Percent is recognized as the Contribution Margin Percent. The contribution margin information can be used to add or remove products and product lines or to make informed pricing decisions.

Also Known As: CM
Examples:
After subtracting our total variable costs from our sales, we found our annual contribution margin was 42%. In other words, for each dollar of sales, 42 cents was left to contribute toward direct costs and profit.

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