Revenue minus variable costs, expressed per unit or as a percentage; what each extra sale contributes toward fixed costs and profit.
Contribution margin answers the question a gross margin cannot: what does the next unit actually add? It is the basis of breakeven analysis and of judging whether a discount promotion destroys or creates value.
For subscription businesses the same logic produces unit-economics, where the contribution from a customer is compared with the customer-acquisition-cost needed to win them.
Example: at $700 revenue and $392 of variable cost, Northwind's contribution margin is $308, or 44%. A 10% price cut to $630 drops the contribution to $238, meaning volume must rise 29% just to stand still on profit.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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