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Contribution margin is the revenue left over after variable costs — the pool of money that must cover fixed costs and profit. In paid acquisition, contribution margin per customer (or per order) is the ceiling on what you can profitably spend to acquire them. Operators who optimise for revenue or ROAS without tracking contribution margin regularly discover they are scaling a business that loses more money per customer as it grows.
Contribution Margin = Revenue − Variable Costs. Variable costs in e-commerce typically include COGS, payment processing (2–3%), shipping, and returns. Fixed costs (rent, salaries, software) are excluded.
subscription_discount = 0.10 for subscribers paying 10% less, recompute CM for subscribers vs. one-time buyers, and note which cohort you can afford a higher CAC for.Use these three in order. Each builds on the one before.
In one paragraph, explain what contribution margin is, how it differs from gross margin, and why it is the relevant profit metric for paid acquisition decisions.
Walk me through every variable cost line that should go into contribution margin for a DTC e-commerce brand, and explain why fixed costs are excluded even though they must eventually be covered.
Our contribution margin is 35% and we are considering launching a new product line with a 55% CM. Walk me through how to model the blended impact on our overall CAC ceiling as the new line scales to 30% of revenue.