Contribution Profit vs Gross Profit
Can someone help provide a succinct comparison of contribution profit vs. gross profit? Sometimes I see them used essentially interchangeably but also have seen different definitions of the two as well.
Contribution Profit (or Contribution Margin) is Revenues - Variable Costs.
Gross Profit is Revenues - COGS
Variable Costs and COGS are different
Maybe I’m an idiot, but what’s the point of this?
Why wouldn’t you just take out COGS and look at EBITDA at that point?
1. There may be things in COGS that are fixed in nature (e.g., factory overhead expenses)
2. EBTIDA doesn't tell you the 'unit economics' of the product - it includes SG&A which are largely fixed. However, there may be portions of SG&A that are more variable in nature (e.g., sales commission).
Usually if you see the term contribution margin in a CIM or something they'll have some sort of explanation on what the company is taking into account in terms of P&L line items so you'll get a good sense of whether that's the right metric to use or not.
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