Glossary

Contribution margin

The price of one unit minus the costs that exist only because that unit was sold.

Contribution margin is what each sale contributes toward fixed costs and then profit. Fixed costs divided by it gives the break-even volume, which makes it the load-bearing figure in every break-even calculation. The costs most often left out of it are payment processing and refunds — on a small ticket the flat portion of a card fee can be close to a tenth of the price. When contribution margin is zero or negative no volume breaks even, because every additional sale makes the loss larger.

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