What is contribution margin?

Contribution margin — this is a metric that reflects the difference between the revenue from selling a product and the variable costs associated with its production and sale.

Formula:

Contribution Margin = Revenue - Variable Costs

This metric shows how much money remains to cover fixed costs and generate profit. In product management, contribution margin helps understand how much profit a product or its individual features generate.

For example, if a product is sold for 1000 rubles, and the variable costs for its production and delivery are 600 rubles, then the contribution margin will be 400 rubles. These 400 rubles go towards covering fixed costs (rent, salaries) and profit.