How Contribution Margin Works
Depending on the business, variable costs may include product cost, shipping, payment fees, commissions, remakes or service labor.
A Simple Example
A $500 order with $300 in variable costs produces $200 of contribution margin before fixed overhead.
Why Contribution Margin Matters
Contribution margin shows how much room exists to pay for acquisition and contribute toward overhead and profit.
Common Misreading
Gross margin and contribution margin are not always the same. Define exactly which variable costs are included before setting media targets.