Contribution Margin
The amount each sale contributes toward covering fixed costs and generating profit.
Definition
Contribution margin is the difference between the selling price and the variable cost per unit. It represents the portion of each sale that goes toward covering fixed costs. Once fixed costs are covered, every additional unit sold at a positive contribution margin is pure profit. Contribution margin percentage = (Price - Variable Cost) / Price x 100. High-margin businesses (like SaaS at 80%+) need fewer sales to break even than low-margin businesses (like e-commerce at 20-30%).
Why it matters for founders
Contribution margin determines your pricing power and business model viability. A razor-thin contribution margin means you need massive volume to break even. A high margin gives you room for customer acquisition spend and faster profitability.
Example
You sell a subscription for $99/month. Variable costs (hosting, payment processing, support) are $14/month. Contribution margin = $85/unit (85.9%). For every customer you add after break-even, $85 goes straight to profit.
How Foundra helps
Foundra's pricing analysis in the Build phase helps you structure offers that maximize contribution margin while staying competitive.
Start your free trial→Related free tools
Related terms
Break-Even Point
The point where your total revenue equals your total costs, resulting in zero profit or loss.
Unit Economics
The revenue and costs associated with a single unit of your business (usually one customer).
Monthly Recurring Revenue (MRR)
The predictable revenue your business generates every month from subscriptions.
Lifetime Value (LTV)
The total revenue a customer generates over their entire relationship with your business.