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Cash contribution margin measures sales left after an explicitly defined set of variable cash costs. Compare two products, reconcile the result to ordinary contribution and separate cost behavior from the timing of receipts and payments.
Cash contribution margin is revenue remaining after a defined set of variable cash costs, divided by revenue. Because the phrase is nonstandard, the definition must accompany the percentage. Here it means a cash-cost product contribution matched to sales, before fixed costs and without substituting collections for revenue.
Ordinary contribution is sales less all variable costs. OpenStax's contribution-margin explanation describes the amount available to cover fixed costs and contribute to profit. The standard contribution margin ratio uses that full variable-cost boundary.
The definition used here excludes separately identified noncash variable charges while retaining cash-type costs attributable to the period's sales. A supplier invoice can therefore count before payment. Its inclusion depends on the nature of the cost and the sales it supports, rather than the bank transaction date.
Cash-cost contribution = Net revenue − Variable cash costs matched to sales
Cash contribution margin = Cash-cost contribution / Net revenue × 100
Ordinary contribution = Cash-cost contribution − Noncash variable costs
Write this definition at the top of the workbook. If your company instead uses actual customer collections less actual variable payments, label that receipts-and-payments calculation separately and specify its denominator. The two approaches answer different questions.
Start with net sales by product and period after discounts, returns and allowances. Add sales units and matching material, variable labor, commission and delivery costs. Keep a source document or ledger reference for each cost line.
Each cost row needs two classifications: fixed versus variable, and cash versus noncash in nature. Rent is usually a fixed cash cost, so it stays below contribution. Production labor qualifies only to the extent it changes with output over the relevant decision range. Include payroll burden in that variable amount where applicable.
Split mixed costs using a documented basis. A freight contract with a fixed monthly retainer and a shipment charge needs separate rows. Depreciation calculated by units of production may be variable; ordinary straight-line depreciation generally is not. Do not remove a fixed depreciation allocation from ordinary contribution if the allocation was never a variable cost to begin with.
A US component manufacturer reviews September 2026. It matches sales with their variable costs and separately identifies usage-based, noncash depreciation. The example excludes fixed costs from both contribution measures.
| Product | Units sold | Net price per unit (USD) | Net revenue (USD) |
|---|---|---|---|
| A | 10,000 | 60 | 600,000 |
| B | 5,000 | 80 | 400,000 |
| Total | 15,000 | 1,000,000 |
Revenue is units multiplied by net price. Costs below are positive expense amounts matched to those sales. Dollar amounts are exact; margin percentages are displayed to one decimal place.
| Cost and contribution step | Product A (USD) | Product B (USD) | Total (USD) |
|---|---|---|---|
| Net revenue | 600,000 | 400,000 | 1,000,000 |
| Materials | 240,000 | 140,000 | 380,000 |
| Variable production labor, including payroll burden | 90,000 | 80,000 | 170,000 |
| Sales commissions | 30,000 | 20,000 | 50,000 |
| Variable outbound delivery | 24,000 | 20,000 | 44,000 |
| Total variable cash costs | 384,000 | 260,000 | 644,000 |
| Cash-cost contribution | 216,000 | 140,000 | 356,000 |
| Usage-based noncash variable depreciation | 24,000 | 20,000 | 44,000 |
| Ordinary contribution | 192,000 | 120,000 | 312,000 |
| Margin calculation | Product A | Product B | Total |
|---|---|---|---|
| Cash-cost contribution / revenue | 216,000 / 600,000 | 140,000 / 400,000 | 356,000 / 1,000,000 |
| Cash contribution margin | 36.0% | 35.0% | 35.6% |
| Ordinary contribution / revenue | 192,000 / 600,000 | 120,000 / 400,000 | 312,000 / 1,000,000 |
| Ordinary contribution margin | 32.0% | 30.0% | 31.2% |
The difference is precisely the $44,000 noncash variable charge. Company cash-cost contribution is 1,000,000 − 644,000 = $356,000; ordinary contribution is 356,000 − 44,000 = $312,000.
Product A has the higher cash contribution percentage. Product B contributes more per unit: 140,000 / 5,000 = $28.00, against A's 216,000 / 10,000 = $21.60. Capacity requirements and fixed costs still matter before choosing a product mix. Use weighted-average contribution margin when translating that mix into a combined planning assumption.
Suppose the same month has the following working-capital balances. Assume no inventory movement, prepayments, write-offs, sales taxes or other adjustments, and that the payable balances relate only to these variable cash costs.
| Timing input | Amount (USD) |
|---|---|
| Net revenue | 1,000,000 |
| Opening trade receivables | 200,000 |
| Closing trade receivables | 260,000 |
| Variable cash costs matched to sales | 644,000 |
| Opening related payables | 80,000 |
| Closing related payables | 110,000 |
| Receipts-and-payments check | Calculation | Amount (USD) |
|---|---|---|
| Customer collections | 1,000,000 + 200,000 − 260,000 | 940,000 |
| Related variable-cost payments | 644,000 + 80,000 − 110,000 | 614,000 |
| Collections less those payments | 940,000 − 614,000 | 326,000 |
The bridge is 356,000 − 60,000 increase in receivables + 30,000 increase in payables = $326,000. That is still before fixed cash expenses and other cash movements.
The SEC's cash-flow explanation describes adjustments for noncash items and operating assets and liabilities. For the company-level cash question, use operating cash flow margin with the cash-flow statement rather than relabeling product contribution.
Bring a sales and cost workbook with the cash, noncash and variable-cost definitions recorded; Covirage maps the columns, and its tools compute and check product contribution and the total reconciliation. The external AI model explains the result with every figure traced to its rows. Create a free Covirage account and bring a sample of your own data.
See customer profitability for the broader customer and product margin analysis.
No. Companies may use the phrase for different internal calculations. State whether the basis uses sales and matching cash-type variable costs or actual receipts and payments, list exclusions and reconcile the result to the source accounts.
No. Under the definition used here, a cost must be variable as well as cash in nature. Fixed rent and salaried overhead remain below contribution even when paid during the period. Include the variable portion of mixed costs only.
Yes. Customers can pay later than suppliers, inventory can absorb cash and fixed expenses still need payment. Positive contribution shows that sales exceed the defined variable costs; a separate cash-flow analysis establishes the company's cash movement.