The Contribution Margin per unit is the amount a business makes on a sale after subtracting the variable costs of a single item sold. The contribution margin is important to track because it helps businesses evaluate how well they are doing. It also helps them identify areas where they can reduce costs, which can increase their profits.There are two main types of contribution margin: initial and replacement. The initial contribution margin is the total contribution margin on a product when it is first introduced. The replacement contribution margin is the contribution margin earned after the fixed costs have been recovered from the sales of the product.Contribution margin can also be expressed in percentage terms as a percentage of sales, or as a percentage of variable costs.
