Contribution Margin
financialContribution Margin
Definition
Revenue minus variable costs (COGS, shipping, payment processing). The profit available to cover fixed costs and marketing.
How to Calculate Contribution Margin
(Revenue - Variable Costs) ÷ Revenue × 100
Example
Scenario: $100 product with $40 COGS and $10 fulfillment costs
Calculation: ($100 - $50) ÷ $100 = 50% contribution margin
What's a Good Contribution Margin?
40-70% for most DTC products to allow for marketing spend
Common Mistakes
- Not including all variable costs like payment processing and returns
- Using contribution margin without considering customer lifetime value
💡 Expert Tip
Contribution margin determines your maximum sustainable CPA. If contribution margin is 50%, your CPA can't exceed 50% of AOV long-term.
— Based on $100M+ in managed ad spend
Related Terms
By Kristijan Arapov • Based on $100M+ in managed ad spend • Updated 2026