1. What is CM Ratio?

The Contribution Margin (CM) Ratio represents the percentage of each sales dollar available to cover fixed costs and contribute to profit. It's a key metric in cost-volume-profit analysis.

2. How Does the Calculator Work?

The calculator uses the CM Ratio formula:

Where:

• \( CM \) — Contribution Margin (Revenue - Variable Costs)
• \( Sales \) — Total Sales Revenue

Explanation: The ratio shows what percentage of sales revenue is available after variable costs to cover fixed costs and profit.

3. Importance of CM Ratio

Details: The CM Ratio helps businesses determine break-even points, analyze profitability of products, and make pricing decisions. A higher ratio indicates more funds available to cover fixed costs.

4. Using the Calculator

Tips: Enter both CM and Sales in USD. CM must be ≥ 0 and Sales must be > 0. The result is expressed as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What's a good CM Ratio?
A: It varies by industry, but generally higher is better. Ratios above 50% are considered strong in many industries.

Q2: How is CM different from gross margin?
A: CM considers only variable costs, while gross margin considers both variable and fixed production costs.

Q3: Can CM Ratio be negative?
A: Yes, if variable costs exceed revenue, indicating each sale loses money.

Q4: How can businesses improve their CM Ratio?
A: By increasing prices, reducing variable costs, or selling more high-margin products.

Q5: Is CM Ratio useful for service businesses?
A: Absolutely, it helps service businesses understand their cost structure and pricing.