Contribution Margin
The incremental profit earned on each unit sold: revenue minus direct variable costs. What remains goes to pay fixed costs and other non-operating expenses.
Real Growth and CashTerm 61 / 81
Formula
Contribution margin = Revenue − Variable costs · Contribution margin ratio % = (Revenue − Variable costs) ÷ Revenue × 100
In practice
What affects the result most is which costs you treat as variable (our reading). Wall Street Prep gives purchases of inventory or materials, direct labor and shipping as examples. In an AI product, inference cost grows with sales, so it can be treated as variable (our reading); see the Inference Cost concept. Calculated per product or customer group, contribution margin shows which sales actually leave something toward fixed costs (our reading). State which items you count as variable and keep the same definition across periods.