Do you know the difference between Gross Profit and Contribution Margin? These are two terms that are very similar and often confused. Getting it right can help you, especially when communicating with investors! Here is Troy’s simple explanation.
Do you know the difference between Gross Profit and Contribution Margin? These are two terms that are very similar and often confused. Getting it right can help you, especially when communicating with investors! Here is Troy’s simple explanation.
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3 Responses
Hi Troy, thank you for this. Are contribution margin and unit economics synonymous?
@Matt, "Contribution Margin" is a very specific term that refers to the amount of money earned when selling a particular product or service. If I sell a widget for $10.00 and the cost of the Widget is $4.00, Packaging is $1.50 and Shipping is $2.00, my contribution margin is $10.00-$4.00-$1.50-$2.00 = $2.50. "Unit Economics" is usually referring to the entire life cycle of a customer – What did I spent in advertising/sales to get the customer and then how much profit do I make off the customer over the lifetime of the customer. So, Contribution Margin is an input into the larger Unit Economics. Hope that helps!
@Troy. It sure does, thank you!