Most product sellers track gross margin (revenue minus COGS) and assume their products are profitable. But in DTC, the biggest variable costs aren’t manufacturing, they’re fulfillment, payment processing, and customer acquisition. Contribution margin captures all of these. This article walks through the formula, a worked example on a 49-dollar product (63% gross margin turns into 22.5% contribution margin once you subtract fulfillment, processing, and CAC), common mistakes like not allocating CAC per SKU, and four levers to improve margin. The core argument is that gross margin is a manufacturing metric being used to make business decisions, and contribution margin is the number that should drive pricing, ad spend, and SKU portfolio strategy.