Finance and accounting
Contribution
What each sale adds after its own variable cost.
Last reviewedWhat does Contribution mean?
Contribution per unit is the price of one unit minus the variable cost of that unit. It is the money each sale contributes toward covering fixed costs and then toward profit. If a coffee sells for 4 and the cup, beans and milk cost 1, the contribution is 3. It is not the profit per unit, because fixed costs have not been covered yet.
Where does it come up in case interview prep?
- Unit economics in any businessLesson in How industries work: the toolkit
- Revenue models, cost structure, unit economics and operationsLesson in Pharma, biotech and medical devices
- Diagnosing a profit decline: the reference caseLesson in Profitability
- The arithmetic, from the ground upLesson in Case math and quantitative reasoning
- How hospitals and insurers make money: costs, unit economics and operationsLesson in Healthcare providers and payers
- Market entryLesson
- PricingLesson
- New product or service launchLesson
Related terms
- Contribution marginRevenue minus all variable costs, as an amount or a percent of revenue.
- BreakevenThe volume or revenue at which profit is exactly zero.
- Variable costA cost that rises and falls with how much you make.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Semi-variable costA cost with a fixed part and a part that moves with volume.