Contribution margin is sales revenue minus the variable costs associated with those sales.
How it works in retail
It can be expressed per unit, in total or as a percentage of sales. It shows the amount available to cover fixed costs and, after those are covered, contribute to profit.
A retail example
An order produces $80 in revenue and $50 in defined variable costs. Its contribution is $30, or 37.5% of revenue.
What to keep in mind
The result depends on which costs are variable in the analysis. Payment fees, fulfilment, returns and commissions may matter beyond the product’s purchase cost.
Examples are illustrative. Terminology and measurement conventions can vary by business and market.