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Contribution Margin Ratio | Contribution Margin Formula. 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.o calculate the contribution margin ratio, divide the contribution margin by sales. The contribution margin is calculated by subtracting all variable costs from sales.
Contribution margin is a productâs price minus all associated variable costs, resulting in the incremental profit earned for each unit sold.The total contribution margin generated by an entity represents the total earnings available to pay for fixed expenses and to generate a profit.o determine the contribution margin, s ubtract all variable costs of a product from its revenues, and divide by its net revenue. Product variable costs typically include, at a minimum, the costs of direct materials and sales commissions.