Contribution margin is revenue minus all variable costs (COGS plus variable sales and marketing plus variable customer-success), expressed as a percentage of revenue. It provides a view of unit profitability that accounts for the full cost of serving each customer rather than just delivery costs (gross margin). The metric is particularly useful at marketplace and consumer companies where variable costs go well beyond COGS, and less commonly used at SaaS companies where most non-COGS costs are fixed at scale. Contribution margin is the deeper unit-economics view that gross margin alone can miss.
The calculation:
Basic formula: