Contribution margin
What a sale leaves after the costs that come with it, such as product cost, shipping and payment fees, before fixed costs like rent and salaries.
Also called contribution per order
It is the money each order or unit contributes to fixed costs and profit. As a share of the price it is often called the margin.
Price, discount and shipping changes alter the contribution of every order, which is why they are judged on profit rather than revenue.
A $40 product that costs $16 contributes $24 per unit, a 60% margin. Sold at 20% off, it contributes $16.
Related terms
- Profit per visitorGross profit from orders divided by visitors: revenue minus product costs and other variable costs, per visitor in a variant.
- Break-even analysisWorking out how many more or fewer orders a price, discount or shipping change needs to keep gross profit where it is, before you test it.
- Average order value (AOV)Revenue divided by the number of orders: how much a typical order is worth.