Contribution Margin (CM) is a fundamental financial metric used to evaluate the profitability of a product, service, or business. It measures the amount of revenue remaining after deducting variable costs and can be expressed in several ways, depending on what costs are subtracted from the revenue:

CM1: This version of contribution margin subtracts both variable and fixed costs from revenue. This calculation provides a net outlook, showing what remains from revenue after all operational costs are covered. However, it’s important to note that typically, contribution margin is calculated without deducting fixed costs, so referring to CM1 as including fixed costs is not standard practice.

CM2: This is the more traditional calculation of contribution margin, where only variable costs are subtracted from revenue. The resulting figure indicates how much revenue is available to cover fixed costs and contribute to profit. This is a crucial metric for break-even analysis, pricing strategies, and operational decision-making.