Contribution margin
Last updated
Quick Answer
Contribution margin is revenue minus variable costs, measured per unit, per job or per line.1,2
Formula
revenue - variable costs, per unit / job / line
What it is
It isolates what each additional unit of work contributes toward fixed costs. The unit matters more than the formula: for a trades business it is per job, for a distributor it is per line shipped, and for a services firm it is per engagement. Choosing the wrong unit produces a number that is arithmetically correct and operationally useless.1,2
Operational context
What good looks like
Why It Matters
It is the input to every break-even question a leveraged operator has, including the only one that really counts — how much revenue decline the business survives with debt service treated as a fixed cost.1
Term Family
Related concepts
Tools & Resources
Frequently Asked Questions
What is Contribution margin in venture capital?
It isolates what each additional unit of work contributes toward fixed costs. The unit matters more than the formula: for a trades business it is per job, for a distributor it is per line shipped, and for a services firm it is per engagement.
Why is Contribution margin important for startups?
Understanding Contribution margin is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.B2-01 — Permanent Equity content libraryPermanent Equity content libraryPractitioner primary(Contribution margin is revenue minus variable costs, measured per unit, per job or per line.)secondary · B2 · kpi-instrumentation · metric
- 2.A2-09 — Nagle & Muller, The Strategy and Tactics of PricingNagle & Muller, The Strategy and Tactics of PricingAcademic / institutional primary(Contribution margin is revenue minus variable costs, measured per unit, per job or per line.)primary · A2 · kpi-instrumentation · metric
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