What is the Contribution Margin Ratio?

The contribution margin ratio presents a profit (less variable expenses) as a percentage of net sales.

For an individual product, the contribution margin ratio would look at that product’s contribution margin ratio as a percentage of the profit made on that sale. The higher the contribution margin ratio, the better.

A low contribution margin ratio would indicate that a company would have a difficult time creating a substantial profit from the sale of that product over time.