Definition
Revenue minus all variable costs associated with a customer or unit, showing how much each additional sale contributes toward fixed costs and profit.
Why it matters for growth
Contribution margin reveals true per-unit profitability, which is essential before deciding how aggressively to scale acquisition spend.
Example
A marketplace calculates that after payment processing and support costs, each transaction contributes $4 toward covering fixed costs.
FAQ
- What is Contribution Margin?
- Revenue minus all variable costs associated with a customer or unit, showing how much each additional sale contributes toward fixed costs and profit.
- Why does Contribution Margin matter for growth?
- Contribution margin reveals true per-unit profitability, which is essential before deciding how aggressively to scale acquisition spend.
- What is an example of Contribution Margin?
- A marketplace calculates that after payment processing and support costs, each transaction contributes $4 toward covering fixed costs.