Contribution Margin

The amount of revenue remaining after subtracting all variable costs directly associated with producing or delivering a product, contributing to covering fixed costs and generating profit.

Contribution margin reveals the true profitability of each product or service before fixed overhead. A product with a high contribution margin funds operations; a product with a negative contribution margin destroys value with every sale.

A founder sells a workshop for £500 per person. Variable costs including the venue, printed materials, and catering come to £120 per attendee. Her contribution margin is £380 per head, meaning each additional booking adds £380 toward her profit.