Difference between Contributions Magin and Gross Margin

Contribution Margin Vs. Gross Margin

Contribution Margin The contribution margin ratio is the difference between a company’s sales and variable expenses, expressed as a percentage. The total margin generated by an entity represents the total earnings available to pay for fixed expenses and generate a profit. When used on an individual unit sale, the ratio expresses the proportion of profit generated on that specific sale.

Contribution Margin = Sale-Total Variable Expenses

Gross Margin Gross margin is a percentage that represents the amount of revenue a company keeps after accounting for the direct costs of producing its products or services. It’s calculated by dividing gross profit by total revenue and multiplying the result by 100. This figure represents the percentage of revenue that is left over after accounting for the costs of production.

Gross Margin = Gross Profit/Sale*100

Example :

Sale  =100

COGS = 50

Gross Profit = 50

Total Variable Expenses = 70

Gross Margin = Gross Profit/Sale*100

Gross Margin =  50/100*100 = 50%

Contribution Margin = Sale-Total Variable Expenses

Gross Margin =  100-70 = 30 or 30%