Unit economics
What is left of a sale after every cost that exists only because the sale happened.
Formula
Contribution margin = Revenue − Variable costs; as a rate, ÷ Revenue
- Variable costs
- cost of goods, payment fees, delivery, per-order support, returns
Gross margin subtracts only cost of goods. Contribution margin subtracts everything that scales with the order, which is why it is the honest input to a marketing decision and gross margin is not.
Contribution margin is what pays for the fixed base — the team, the rent, the software — and everything after that is profit. It is the correct ceiling on acquisition spend: a business cannot pay more to acquire a customer than the customer contributes, however good the revenue looks.
It is also where most e-commerce businesses discover their real problem. Payment fees, delivery, returns and per-order support routinely remove ten to fifteen points that never appear in the gross-margin figure the company plans against.
A store with 45 % gross margin and 32 % contribution margin sets its target CAC on the 45 and buys every customer at a thirteen-point loss it will not see until the quarter closes. Returns and delivery are the usual missing pieces.
The definitions are the easy part. Whether the figure on your dashboard was computed this way is a different question, and usually the more expensive one.