Mastering Unit Economics: Understanding Contribution Margin & How to Calculate It

Understanding your business’s unit economics is critical for sustainable growth—and at the heart of this is the contribution margin. This powerful metric tells you how much profit remains from each unit sold after covering variable costs, and it’s essential for determining your product’s profitability. By using the contribution margin formula (Contribution Margin = Sales Revenue – Variable Costs), businesses can make informed decisions about pricing, scaling, and marketing. Whether you’re running a startup or managing a growing enterprise, tracking contribution margin helps you understand what’s working and where your margins need improvement. When paired with strong unit economics analysis, this metric can give you a clearer picture of your business’s financial health and guide smarter strategies for scaling. In this guide, we break down everything you need to know to master your margins and grow profitably.