Understanding contribution margins

What contribution margin is, how to calculate it, and where to see it in Flow Retail.

Contribution margin (🇳🇴 dekningsbidrag) tells you how much each sale leaves after the cost of the product. Understanding it helps you set the right sales price and know how much discount you can offer.

CM1 (Contribution Margin 1) = revenue minus direct costs, such as the purchase cost of the product. This is what is left to cover your other expenses. CM2 (Contribution Margin 2) = CM1 minus additional expenses, such as rent and salaries. This page uses CM1 unless stated otherwise.

Example

This example follows a product from purchase to sale, and works out how much discount you can offer.

Preparations

• You buy the product ZEISSVICTORY from your supplier Zeiss Watches for NOK 1.000 ex. VAT. Everything above that is contribution.

• You sell it for NOK 10.000 incl. VAT.

• VAT is 25%.

Finding the contribution margin: (🇳🇴 dekningsbidrag 1 or DB1)

1. Remove the VAT: Net sales price = Sales price incl. VAT / (1 + VAT rate) = NOK 10.000 / 1,25 = NOK 8.000

2. Subtract the cost price: Contribution margin = Net sales price − Cost price = NOK 8.000 − NOK 1.000 = NOK 7.000 Each product sold leaves NOK 7.000 to cover fixed costs and generate profit.

The contribution margin percentage is the contribution divided by the net sales price: NOK 7.000 / NOK 8.000 = 87,5%.

Flow Retail shows the contribution margin both as an amount and as a percentage. It calculates it from the price after discount and ex. VAT, minus the cost price. A subsidy on the product reduces the cost price.

Finding how much discount you can offer

This depends heavily on how your business is run, but here is a general example.

The product costs NOK 1.000 ex. VAT. Selling at NOK 1.000 + 25% VAT = NOK 1.250 covers the cost and the VAT, and earns nothing.

Say you want at least NOK 2.000 in contribution to cover fixed costs. The lowest net price is then NOK 1.000 + NOK 2.000 = NOK 3.000, and with VAT, NOK 3.000 × 1,25 = NOK 3.750.

So to keep that contribution, discount the product no further than from NOK 10.000 to NOK 3.750. The NOK 2.000 left goes towards internal costs such as rent, salaries and your Flow Retail licence.

Where and how can I see this in Flow Retail?

Add one or more products to an order, then:

• Keyboard mode — hold Ctrl+D (Cmd+D on Mac), or hold Show details. Each line then shows Cost, CM and Profit.

• Touch mode — press and hold CM at the bottom of the order. The contribution margin for the whole order shows as an amount and a percentage.

The margin shows only while you hold.

What is a good contribution margin?

Anywhere between 20–60% is normal, with most retailers between 30–50%.

A contribution margin of 40% means 40% of the net revenue is left after the cost of the goods. That share covers fixed costs such as rent and salaries, and whatever is left after that is profit. The other 60% is the direct cost of the goods, such as the purchase price and shipping from your supplier.

The higher the contribution margin percentage, the more is left for fixed costs and profit.

Last updated 24.09.2026