Contribution margin is the revenue left from a sale after subtracting all variable costs tied to that sale. It shows how much each additional unit of sales contributes toward fixed costs and profit. Unlike gross margin, it includes variable costs beyond direct delivery, such as payment fees and commissions.

Contribution margin is the real per-deal economics once you strip out everything that scales with the sale. It is the most honest input to a marketing budget because it tells you what each new customer truly adds to the bottom line before fixed costs. Build your acquisition spend off this, not headline revenue.

Example:

 A deal brings $2,000 in revenue with $600 of variable costs (delivery, fees, commission). Contribution margin is $1,400, or 70%.

How is contribution margin different from gross margin?

 Gross margin subtracts the direct cost of delivery. Contribution margin subtracts all variable costs, including sales commissions and transaction fees, giving a fuller per-sale picture.

Why use contribution margin for budgeting?

 It isolates the true incremental profit each new customer adds, which is the money actually available to fund acquisition.