What Is Contribution Margin? (And Why It's Different From Gross Margin)

Gross margin only nets out the cost of the goods themselves: revenue minus COGS, nothing else. Contribution margin goes further and subtracts everything else that moves with the sale — payment processing fees, outbound shipping, and pick-and-pack labor are the three most common — while deliberately leaving out costs that don't scale with volume, like rent or salaried headcount. Those fixed costs come out later, against contribution margin, not against gross margin: contribution margin is what's left to cover them.

Ad spend is usually left out of the per-order contribution margin number on purpose. Acquisition cost varies enormously by channel and by customer, so blending it into one per-order figure hides more than it shows. It gets netted against profit at the cohort or channel level instead — see the contribution-margin vs. gross-margin LTV page for how that works.