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contribution margin ratio

Also called: CM ratio

Contribution margin as a share of the price: how many kopiykas of every hryvnia of sales are left to cover fixed costs.

The contribution margin ratio is contribution margin as a share of price: CM ratio = contribution margin ÷ price × 100%. For a whole month it is total contribution ÷ total sales. It says how many kopiykas (or cents) of every unit of sales are left to cover fixed costs.

It is most useful when products have different prices. Hryvnias per unit tell you what one more unit brings; the ratio tells you what one more hryvnia of sales brings. That turns a sales target into contribution (sales × ratio) and gives break-even in money instead of units: break-even sales = fixed costs ÷ CM ratio.

The ratio reacts strongly to discounts. Variable costs such as payouts and video don't shrink when the price drops, so a 6% discount can cut the ratio by far more than 6%. And a higher ratio doesn't mean more money per unit: a cheap product with a high ratio can leave fewer hryvnias than an expensive one with a lower ratio.

Example

At Klasna an English lesson in the 16-lesson package costs 620 UAH and leaves 184.50: a ratio of 184.50 ÷ 620 = 29.76%. A programming lesson in the same package costs 720 and leaves 720 − 460 − 18 − 36 = 206 UAH: more hryvnias, but a smaller share, 206 ÷ 720 = 28.61%.

For March 2026 as a whole, lesson sales were 4,868,640 UAH and contribution 1,367,884, a ratio of 28.10%. With 1,038,000 UAH of fixed costs, break-even sales were 1,038,000 ÷ 0.2810 ≈ 3.69 million UAH, the same line as 5,950 lessons at an average 621 UAH.

Common mistakes

  • Ranking products by the ratio alone. Decisions about scarce capacity need hryvnias per unit of that capacity, not percentages.
  • Treating a discount as proportional. Payouts and other per-unit costs don't shrink with the price, so the ratio falls faster than the price.
  • Mixing product and company ratios. The monthly ratio moves with the product mix even when no price changes.
  • Dividing by revenue that isn't yours. For a marketplace, use the same base for contribution and sales (GMV or net revenue), never one of each.

Learn it in the course