The Real Question Every Founder Is Asking (Even If They Don’t Know It) Are we making money on each sale, and how much is left to cover everything else?
- pauldellavecchia
- Jul 1
- 3 min read
Updated: Jul 4
This question comes up all the time. It hides behind concerns like:
Why do we feel profitable, but our bank account is shrinking?
Should we hire more sales reps or pull back?
What’s our break-even point?
We grew revenue last month, so why did losses grow too?
The traditional GAAP income statement doesn’t help you answer these questions. It tells you what happened, but not why it happened or what to do next.
That’s where the Contribution Margin Income Statement (CMIS) comes in.
What Is a Contribution Margin Income Statement?
The CMIS is a management tool, not an accounting requirement. It’s designed for decision-making, not compliance.
Here's how it differs:
Traditional IS (GAAP) | Contribution Margin IS |
Focuses on function (e.g. Sales, Marketing, R&D) | Focuses on behavior (Fixed vs Variable costs) |
Harder to tell what scales with growth | Helps predict margins and scale |
Great for investors and auditors | Great for founders and operators |
The core idea:Contribution Margin = Revenue – Variable CostsThis tells you how much each dollar of revenue actually contributes toward covering fixed costs and profit.
Why It Matters to Your Startup
Imagine this:
You run a SaaS company with $1M in ARR. Your GAAP income statement shows a small net loss. But your CMIS reveals something game-changing:
Your contribution margin is 72%
Your fixed costs are growing too fast
Every new $1 in revenue generates $0.72 to cover overhead and profit
Now, instead of asking “Are we profitable?”, you're asking:
Should we spend more on marketing to accelerate growth?
Do we have room to hire another engineer?
When will we hit break-even?
That’s strategic finance, and it's what ScaleFin is all about.
How to Build Your Own Contribution Margin IS
If you’re an SMB owner or startup head, here’s how to get started:
Start with RevenueUse recognized revenue for your product or services, especially if you’re SaaS or subscription-based.
Deduct Variable CostsThese are costs that scale with your revenue. Examples:
Payment processor fees (Stripe, PayPal)
Hosting costs (AWS, GCP)
Customer success
Sales commissions
Cost of goods sold
Calculate Your Contribution MarginCM = Revenue – Variable CostsCM % = CM ÷ Revenue
Subtract Fixed Costs
These stay constant regardless of how much you sell:
Salaries (except commissions)
Rent
Software tools
Founders' pay
Legal and accounting fees
Get to Operating ProfitThis is the money left over after you’ve covered both variable and fixed expenses.
A Quick Example
Revenue | $100,000 |
– Variable Costs (e.g. 25%) | $25,000 |
= Contribution Margin | $75,000 |
– Fixed Costs | $60,000 |
= Operating Profit | $15,000 |
Now you know, if you can grow revenue by $10K next month, you’ll likely add $7.5K more in margin and $7.5K more toward profit.
Where ScaleFin Comes In
At ScaleFin, we do this every day for venture-backed startups and SMBs.
We don’t just deliver monthly books, we:
Build dynamic CMIS models tailored to your business
Help you track CAC, LTV, burn multiple, and breakeven points
Run what-if hiring or pricing scenarios
Give you board-ready reports and founder-friendly insights
Ready to Level Up?
If you want to keep running basic books and invoices, you're fine without us.
But if you're ready to:
Understand how your business really makes or loses money
Present financials to your investors with confidence
Plan growth based on real margins and strategic choices
Then it’s time to talk.