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. It shows how much money remains to cover fixed costs and generate profit.

Formula:

Contribution Margin = Revenue - Variable Costs

Or in relative terms (percentage):

Contribution Margin % = (Revenue - Variable Costs) / Revenue * 100%

Example:

If a product is sold for 1000 rubles, and the variable costs for its production and delivery amount to 600 rubles, then the contribution margin will be 400 rubles. These 400 rubles go towards covering fixed costs (rent, salaries, marketing) and forming profit.

For a product manager, this indicator is important for assessing product profitability, making pricing decisions, and cost optimization.