Why Contribution Matters More Than Profit (At First)
Profit is a slippery liar. You look at your P&L at the end of the month, see a black number, and pat yourself on the back. But that number hides a thousand sins.
In the fulfilment game, especially when you are growing, you shouldn't be obsessed with Net Profit. You should be obsessed with Contribution.
What is Contribution?
It’s simple math derived from the metrics we've been discussing:
Contribution = Revenue - (Product Cost + Direct Operational Cost)
Notice what isn't there? Overheads. Rent. Management salaries. Electricity.
Why Use This Metric?
Because "Profit" depends on how much rent you pay. It depends on how much you pay your CEO. Those are decisions made in a boardroom (or at a kitchen table). They have nothing to do with whether your warehouse is efficient.
Contribution tells you the raw truth: Does shipping this order make us money or lose us money?
If an order has a negative contribution, you are paying the customer to take your product. No amount of volume will fix that. "We'll make it up in volume" is the famous last words of a bankrupt retailer. If you lose £1 on every box, shipping a million boxes just means you lose a million pounds faster.
Once you have this measurement, you can investigate what you actually make money on. Which products contribute? Which customers contribute? And most importantly, which orders are dragging you down?