Gross margin and contribution margin answer different questions
Distinguish gross margin from contribution margin so pricing and channel decisions use the right metric.
Use gross margin when you want to know how much revenue remains after cost of goods sold. Use contribution margin when you need to know what one more sale contributes after the variable costs that sale triggers. Those are not the same managerial questions. Gross margin is useful for product economics and company-level efficiency. Contribution margin is useful for decisions about discounts, channel incentives, service-heavy deals, and volume scaling. A simple test helps: if the cost rises when one more customer buys, it probably belongs in the contribution-margin conversation. If the cost exists regardless of that next sale, it does…
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