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Definition · unit economics

Contribution margin

Contribution margin is revenue minus all variable costs (direct and indirect), and how it differs from gross margin. For contribution margin, the important details are the accounting period, source evidence, reviewer, materiality threshold, and control purpose that make the treatment auditable during close, reporting, and later review.

Also known as contribution margin ratio, CM

Written by Pluvo TeamReviewed by Pluvo Team
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Why it matters

Understanding contribution margin matters because close, reconciliation, and audit work depend on consistent timing, source evidence, review thresholds, and ownership. A loose definition creates avoidable rework. Pluvo computes contribution margin by pulling variable costs from the systems that hold them, so commissions, fees, and fulfillment are captured without manual reconciliation.

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In practice

  • Revenue example

    Teams use contribution margin when they need to separate customer, contract, billing, recognition, and cash effects. That prevents a revenue movement from being misread as growth, churn, expansion, or timing noise.

  • Pluvo example

    Pluvo computes contribution margin by pulling variable costs from the systems that hold them, so commissions, fees, and fulfillment are captured without manual reconciliation.

In practice, teams should define contribution margin with a clear source, owner, time period, and decision before they use it in reporting, planning, or operating reviews.

Understanding contribution margin matters because close, reconciliation, and audit work depend on consistent timing, source evidence, review thresholds, and ownership. A loose definition creates avoidable rework. Pluvo computes contribution margin by pulling variable costs from the systems that hold them, so commissions, fees, and fulfillment are captured without manual reconciliation.

A strong workflow for contribution margin separates the definition from the action: first agree what the term means, then decide how it is measured, when it changes, and who is accountable for the next step.

Pluvo computes contribution margin by pulling variable costs from the systems that hold them, so commissions, fees, and fulfillment are captured without manual reconciliation.

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FAQ

What is the difference between contribution margin and gross margin?

The boundary for contribution margin differs from related terms by scope, source data, time period, and decision use. In this glossary, it covers revenue minus all variable costs (direct and indirect), and how it differs from gross margin, so teams should compare those boundaries before using it in reporting or planning.

How do you calculate contribution margin?

To calculate contribution margin, define the source data, time period, comparison basis, and owner before applying the formula. The useful answer is not only the math; it is whether the inputs and timing match the decision the metric supports.

What is contribution margin per unit?

Contribution margin is revenue minus all variable costs (direct and indirect), and how it differs from gross margin. For contribution margin, the important details are the accounting period, source evidence, reviewer, materiality threshold, and control purpose that make the treatment auditable during close, reporting, and later review.

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Sources

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