Contribution Margin
Contribution margin is what each sale leaves after all variable costs, available to cover fixed costs and profit.
Unlike gross margin, contribution margin also subtracts variable costs such as shipping, packaging, payment and marketplace fees. For ecommerce it shows the real cash each order brings in.
Contribution margin is used to find the break-even point and to judge whether a discount or ad campaign still pays.
Formula
Contribution margin = Price − Variable costs
Contribution margin ratio % = Contribution margin ÷ Price × 100
Example
A product sells for 60 with 35 in variable costs, so it contributes 25 per unit, a ratio of 41.67%.
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Common questions
What is the difference from gross margin?
Gross margin removes only cost of goods; contribution margin removes all variable costs.
Can it be negative?
Yes, which means each sale loses money before fixed costs.