Definition
Revenue minus all variable costs, showing how much each sale contributes toward covering fixed costs and profit.
Formula
(Revenue - Variable Costs) / Revenue x 100
How to measure
Subtract all costs that scale directly with volume, like payment processing or delivery, from revenue, then express as a percentage of revenue.
Why track it
Contribution margin exposes true per-unit profitability before overhead, essential for deciding how far to scale paid acquisition.
Example
A marketplace's contribution margin per transaction is 22% after payment processing and support costs.
FAQ
- What is Contribution Margin?
- Revenue minus all variable costs, showing how much each sale contributes toward covering fixed costs and profit.
- How do you calculate Contribution Margin?
- (Revenue - Variable Costs) / Revenue x 100
- Why track Contribution Margin?
- Contribution margin exposes true per-unit profitability before overhead, essential for deciding how far to scale paid acquisition.