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What Is Contribution Margin Ratio? (+ How to Calculate It)

  1. While a high contribution margin ratio is impressive, it is important to note that companies should not sacrifice the quality of their product or service purely for the sake of increasing the contribution margin ratio.
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  3. Operational efficiencies require a real focus on understanding all of the elements that go into producing the product and how to make improvements.
  4. Thus, the contribution margin ratio expresses the relationship between the change in your sales volume and profit.
  5. Whereas, your net profit may change with the change in the level of output.

Contribution Margin vs. Gross Profit Margin

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