Contribution Margin
Definition
Revenue minus all variable costs directly attributable to the unit, including cost of goods sold and any variable sales costs directly attributable to serving that unit. Contribution margin is not equivalent to gross margin. A company that reports contribution margin must label it distinctly and must not present it as a substitute for gross margin in financial statements or investor reporting.
Common Misapplication
The most common misapplication is presenting contribution margin as gross margin in investor materials. Contribution margin may include deductions for variable costs that are classified as operating expenses under standard cost classification, which produces a lower margin figure than gross margin. Presenting the lower figure as gross margin understates the company's actual gross margin.
FFI Standard Reference
This term is defined and applied in Book 2, Section 2.2: The Unit Economics Standard.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Contribution Margin. https://ffistandard.org/glossary/contribution-margin/. 2026.