Contribution margin

Revenue from a unit minus all the variable costs of producing and delivering it, available to cover fixed costs and profit.

Example

Price 60 minus product 24, shipping 8 and payments 2 leaves a contribution of 26.

Important

Leaving out shipping, payment or servicing costs overstates it.

Related terms

  • Unit economics — The revenue and costs associated with a single unit of a business, such as one customer or one order, used to judge whether each unit is profitable.
  • Gross margin — Gross profit - revenue less the cost of goods sold - expressed as a percentage of revenue. It asks whether the thing being sold makes money.

Lessons that explain it

  • Each customer must be worth more than it costs to win — Unit economics compare what a single customer or order contributes with what it costs to acquire and serve. Growth only creates value when those numbers work. (11 min)

All 578 terms in the Investing glossary