Contribution

Selling price minus variable cost. What each sale contributes towards fixed costs.

What it means

Contribution per unit is the selling price less the variable cost of that unit. Total contribution is what is left to cover overheads and then to become profit.

Why it matters

It is the right basis for pricing decisions at the margin. A job priced below full cost but above variable cost still contributes something, which can be the correct decision when capacity would otherwise be idle.

What it looks like in practice

Break-even is fixed costs divided by contribution per unit. That single formula answers most short-run pricing questions.

What to watch out for

Pricing at contribution habitually. It works for filling spare capacity and it destroys a business if it becomes the normal price.

Where to get proper advice

Your accountant. This is exactly the kind of question they answer in ten minutes and most owners never ask.