Contribution margin: what it is and how to calculate
Contribution margin is how much is left from each sale after subtracting variable costs (ingredients, commission, card fee) — the amount that helps cover fixed costs and, beyond them, becomes profit.
How to calculate
Contribution margin = selling price − variable costs. A dish sold at $40 with $14 of variable cost has a $26 contribution margin. Sum all dishes' margins to cover the month's fixed cost.
- CM = selling price − variable costs
- Covers fixed cost, then profit
- Analyze per dish and in total
Why it matters
A dish can have a high price but low margin if variable costs are large. Contribution margin shows which items really sustain the operation — the basis of menu engineering.
FAQ
Is contribution margin the same as profit?
No. It's what's left after variable costs; profit appears only after fixed costs are also covered.
How do I use contribution margin on the menu?
Prioritize and highlight dishes with high margin and turnover; review low-margin ones (price, portion or cost).