1. What is CM Ratio?

The Contribution Margin Ratio (CM Ratio) is a key financial metric that shows what percentage of sales revenue is available to cover fixed costs and contribute to profit after variable costs have been paid. It's calculated as (Contribution Margin / Sales) × 100.

2. How Does the Calculator Work?

The calculator uses the CM Ratio formula:

Where:

• Contribution Margin — Sales revenue minus variable costs
• Sales — Total revenue from goods or services sold

Explanation: The CM Ratio indicates what percentage of each sales dollar is available to cover fixed costs and generate profit.

3. Importance of CM Ratio Calculation

Details: The CM Ratio is crucial for break-even analysis, pricing decisions, product line decisions, and cost control. It helps businesses understand how changes in sales volume affect profitability.

4. Using the Calculator

Tips: Enter contribution margin and sales in the same currency units. Both values must be positive numbers, with sales greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good CM Ratio?
A: A higher CM Ratio is generally better as it indicates more revenue is available to cover fixed costs. The ideal ratio varies by industry.

Q2: How is CM Ratio different from profit margin?
A: CM Ratio shows the percentage of sales available to cover fixed costs, while profit margin shows the percentage of sales that becomes net profit after all costs.

Q3: Can CM Ratio be greater than 100%?
A: No, since contribution margin cannot exceed sales revenue, the CM Ratio cannot exceed 100%.

Q4: How can businesses improve their CM Ratio?
A: By increasing prices, reducing variable costs, or shifting sales mix toward products with higher contribution margins.

Q5: Is CM Ratio useful for service businesses?
A: Yes, service businesses can use CM Ratio to analyze the profitability of different services and make pricing decisions.