Finance and accounting
Contribution
What each sale adds after its own variable cost.
Facts checked against sources onWhat does Contribution mean?
Contribution per unit is the price of one unit minus the variable cost of that unit. It is the money each sale contributes toward covering fixed costs and then toward profit. If a coffee sells for 4 and the cup, beans and milk cost 1, the contribution is 3. It is not the profit per unit, because fixed costs have not been covered yet.
Where does it come up in case interview prep?
- Unit economics in any businessLesson in How industries work: the toolkit
- Procurement and sourcing: where the money goesLesson in Sourcing, trade and supply risk
- Supplier concentration and resilienceLesson in Sourcing, trade and supply risk
- Switching costs, lock-in and habitsLesson in Why some businesses win: competitive advantage and the economics of strategy
- Positioning and why customers choose: value to the customer and willingness to payLesson in Customers and growth: the economics of marketing
- The funnel and conversion maths: reach, consideration, trial and repeatLesson in Customers and growth: the economics of marketing
- Retention and cohorts: why keeping customers beats winning themLesson in Customers and growth: the economics of marketing
- Marketing return: CAC, payback, incrementality, and why last-click credit misleadsLesson in Customers and growth: the economics of marketing
Related terms
- Contribution marginRevenue minus all variable costs, as an amount or a percent of revenue.
- BreakevenThe volume or revenue at which profit is exactly zero.
- Variable costA cost that rises and falls with how much you make.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Semi-variable costA cost with a fixed part and a part that moves with volume.
Learn it in context
See Contribution at work in a lesson from How industries work: the toolkit, with checks as you go.
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