Terms of Trade · Edition 1: The PE deck
Contribution margin
Definition
Revenue less the variable costs of making the sale: product cost, payment fees, fulfilment and returns, and, depending on where the finance team draws the line, the marketing spent to win the order. What remains is the contribution the sale makes towards fixed costs and profit. Finance teams define it before or after marketing; Barking Cat’s reads take it after marketing, and the board pack should state which it uses. It is the first ecommerce number a finance director trusts and the last one a growth deck shows.
Field note
Contribution margin is the two-word phrase a CFO uses to terrify marketers. It is the number that turns a record month into a loss, because it is the only one that remembers the free delivery, the discount code and the dresses that came back.
Board question
What is the contribution margin per order on the ecommerce channel this quarter, and which line item moved it?
Applied through
The Review measures against margin alongside traffic, conversion, order value and repeat; the Commercial Diligence read marks every growth assumption against it.
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