Contribution Margin (Marketing)
Contribution Margin is the profitability of a product after deducting Variable Costs (COGS, Shipping, Payment Processing) and Variable Marketing Costs. It measures the raw dollars available to cover fixed costs (Salaries, Rent) and generate profit.
The Short Version
Revenue - Costs You Can Avoid - Ad Spend.
Revenue is Vanity, Margin is Sanity
A campaign generates $1M revenue with $800k spend and $300k COGS.
You lost $100k. But the agency celebrates the $1M revenue/1.25 ROAS. Contribution Margin reveals the truth.
How it works
Revenue
- Cost of Goods Sold
- Variable Fulfillment/Fees
- Variable Ad Spend
= Contribution Margin
Common Misconceptions
Optimizing for ROAS (Revenue) instead of Margin
Forgetting variable fulfillment costs (Shipping is expensive!)
Treating fixed marketing costs (Agency Retainer) as variable
Deep Dive Concepts
Related Terms
Frequently Asked Questions
QIs this same as Gross Margin?
No. Gross Margin usually just subtracts COGS. Contribution Margin subtracts ALL variable costs, including Ad Spend.