Finance and accounting
Contribution margin
Revenue minus all variable costs, as an amount or a percent of revenue.
Last reviewedWhat does Contribution margin mean?
Contribution margin is revenue minus all variable costs, including variable selling costs such as commissions and delivery. As a ratio it is contribution divided by revenue: price 4 and variable cost 1 give a contribution of 3 and a contribution margin ratio of 75%. Breakeven revenue = fixed costs ÷ contribution margin ratio. It differs from gross margin, which subtracts COGS instead of all variable costs.
Where does it come up in case interview prep?
- Unit economics in any businessLesson in How industries work: the toolkit
- Fixed and variable costs, operating leverage, and unit economicsLesson in Business basics for non-business learners
- Diagnosing a profit decline: the reference caseLesson in Profitability
- PricingLesson
- Order economics: last mile, dark stores, and returnsLesson in E-commerce, marketplaces, and quick commerce
- Unit economics and subscription businessesLesson
- Three partner-style casesLesson in Final rounds and partner cases
- Stretch cases: profit to pricing, and entry to acquisitionLesson in Integrated multi-part cases
Related terms
- ContributionWhat each sale adds after its own variable cost.
- Gross profit and gross marginRevenue minus the cost of goods sold, as an amount or a percent.
- BreakevenThe volume or revenue at which profit is exactly zero.
- 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.
- Variable costA cost that rises and falls with how much you make.