Technical definition
Revenue minus variable costs; the amount available to cover fixed costs and then profit.
How it works
Contribution margin can be calculated in total, per unit or as a percentage of revenue. It supports volume, pricing, special-order and product-mix decisions within the relevant range.
Everyday example
Price $100 minus variable cost $35 gives contribution margin $65 per unit.
Common pitfall
Contribution margin is not gross margin unless variable-cost and product-cost classifications happen to coincide.