Contribution margin is a financial metric that represents the net amount remaining from sales revenue after subtracting variable costs. Variable costs include expenses that change with the level of production or sales, such as direct materials or sales commissions. The contribution margin can be expressed as a total (for all product sales) or per unit (for individual products).

Understanding contribution margin is vital for businesses to determine profitability and to make decisions regarding pricing, production, and product line analysis. For example, if a company's product sells for $50 and its variable costs per unit are $20, the contribution margin per unit would be $30. This means each unit sold contributes $30 towards covering fixed costs and generating profit.