Contribution Margin
How much each sale chips away at your fixed costs. Selling price minus the variable cost per unit. If your contribution margin is $25, every sale puts $25 toward your $3,000/month in fixed overhead.
Example
You sell a product for $45. The product itself costs $15, shipping is $3, and the payment fee is $1.61. Contribution margin: $45 - $19.61 = $25.39 per unit
Why It Matters
Contribution margin tells you whether a specific product is actually helping or hurting your business. If you only look at gross margin, products with high volume but low contribution margin will silently drain your cash flow.
Pro Tip
Calculate contribution margin per SKU. Cut any product where it doesn't cover at least 2x its share of fixed costs.
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