Course Outline
Join PRO

How do we deal with a negative contribution margin ratio when calculating our break-even point?

Harold Averkamp, CPA, MBA

Definition of Negative Contribution Margin

A negative contribution margin ratio indicates that a company’s variable costs and expenses exceed its sales. In other words, if the company increases its sales with the same sales mix, it will experience larger losses.

Example of Eliminating a Negative Contribution Margin

By definition, the ways to eliminate the negative contribution margin include:

  • Increasing selling prices
  • Decreasing the variable costs per unit of product
  • Doing a combination of increasing selling prices and decreasing the variable costs per unit
  • Promoting the products with high positive contribution margins
  • Eliminating the products with negative contribution margins
  • Determining the contribution margins by customer to guide you with further action

When setting prices or bidding for new work, you must think of the bottom line profits, not just the top line sales.

Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews



PRO Plus

Lifetime Access (One-Time Fee)
Word Scrambles
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on

Learn More About Harold

Certificates of

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus