Contribution Margin

Contribution margin is revenue minus the variable costs of delivering it (hosting, payment processing, usage-based vendor fees) before any fixed cost gets allocated. It answers a narrower question than gross margin: not “is this line of business profitable overall,” but “does selling one more unit actually help.”

A business can carry a healthy gross margin and a weak contribution margin if fixed costs are doing the work variable costs should be doing. See gross margin for how the two relate.