Contribution profit is revenue minus variable costs, expressed in currency units rather than as a ratio.

How it works

Calculate per unit, per customer, or per segment: annual contract value minus variable fulfillment, support, and delivery costs equals contribution profit for that account. Summing across customers yields total contribution profit available to cover fixed operating expenses and generate operating income. Board decks sometimes show contribution profit by cohort after CAC is paid—distinct from LTV, which includes retention and expansion over time. Marketplace models split contribution profit between supply and demand sides after variable take-rate costs. Negative contribution profit on a segment triggers pricing, product, or sunsetting decisions.

Why it matters

• Founders: Segment reporting reveals which products or channels fund the business versus drain it.
• Investors: Path to profitability often requires positive contribution profit at scale before G&A efficiency kicks in.
• Operators: Sales comp and discounting policies should preserve minimum contribution profit floors.

Common mistake

Equating contribution profit with net profit. Fixed costs still must be covered; a positive contribution profit business can burn cash while scaling G&A.

Related ideas

Contribution margin, unit economics, gross profit, operating profit, and LTV/CAC analysis complement contribution profit metrics.