The formula
Contribution margin = (Revenue − Variable costs) ÷ Revenue × 100. Contribution profit is revenue minus the costs that change with the analyzed sales or decision.
Why the boundary matters
Variable cost is about behavior in the decision range. Product materials, transaction fees, commissions and incremental delivery may vary; labor or platform costs can be fixed, step-variable or mixed depending on capacity.
Gross margin is not always contribution margin
Gross margin follows the chosen COGS definition. Contribution margin follows cost behavior for a decision. They can be close in a simple product model, but they should not be treated as interchangeable without checking the cost boundary.
Use it with constraints
For an extra order, compare incremental contribution with capacity, cash, returns, service load and opportunity cost. For a portfolio decision, use contribution by product and channel rather than one blended percentage.