Plain definition
Contribution margin is sales revenue less variable costs. It is the amount available to cover fixed costs and then profit; it is not gross profit unless the cost classification and basis happen to match.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A product sells for and has variable material, commission, and delivery cost. Its unit contribution means 200 units provide toward fixed costs and profit. A discount to leaves contribution, so the sales manager tests whether the extra volume is realistic before accepting it.
Why it matters
Contribution helps with short-run volume choices, but it does not prove that a price covers long-run fixed and shared costs.
Practical consequence
State which costs vary with the decision, calculate contribution per unit and in total, and pair special-price decisions with capacity, cash, and long-run pricing checks.
Try your own numbers
See the unit volume needed to cover fixed costs, and the planned profit at a chosen volume.
Break-even