How to Determine the Average Contribution Margin per Hour
Contribution margin tells you how much money you have left over to pay any fixed costs. In accounting, there are two types of costs: variable and fixed. Fixed costs are costs that do not change with a change in output. For example, rent is always the same no matter how many units you make. Variable costs are costs that change with more units make, like raw material costs. You can calculate your contribution margin per hour if you know your hours worked during the year.
Find your total sales for the year, all variable costs for the year and total hours worked. Do not include fixed costs. So any costs that are the same month-to-month should not be part of this calculation. For example, assume you have $100,00 sales, $70,000 of variable costs and had working time of 400 hours.
Subtract variable costs from sales to calculate your yearly contribution margin. In the example, $100,000 minus $70,000 equals a contribution margin of $30,000.
Divide your contribution margin by the number of hours worked to calculate contribution margin per hour. In the example, $30,000 divided by 400 hours equals $75 per hour.