Contribution Margin

What it is: The contribution margin is the difference between a company's revenue from sales and its variable costs directly associated with producing or delivering those products or services.

Why it is important: The contribution margin indicates the profitability of each unit sold and helps businesses make informed decisions about product lines, pricing strategies, and cost management.

How to use it in startups: Startups can use the contribution margin to assess the profitability of different products or services, evaluate pricing models, and make decisions about resource allocation. By maximizing contribution margins, startups can optimize profitability and drive sustainable growth.