What it means in practice
The selling price is the denominator. This makes it different from markup, which compares an increase with cost. State the variable costs included, including any percentage selling fee. A margin cannot be calculated meaningfully at zero revenue. A percentage can make comparison easier, but the amount of contribution and the available volume still matter when deciding whether an offer supports the business. The percentage should be calculated from the same contribution and revenue scope. A combined margin across several products depends on the sales mix, so an improvement can occur when customers buy more of a stronger line. Do not average product percentages without considering revenue weights. Read the percentage alongside the contribution amount and the capacity needed to generate it.
A fictional worked example
A ₦10,000 sale with ₦3,800 contribution has a contribution margin of 38 per cent.
A useful question
Are you comparing the same included costs when reviewing two offers' margins?
Read the practical guide