Contribution margin is what a job leaves over after its own direct costs — the materials and the labour that did it. What it contributes toward overhead and, once overhead is covered, toward profit.
Why it is not the same as profit
A job does not have a profit until the business has covered its overhead, and overhead does not belong to any single job.
Trying to assign a share of the rent to each job produces a number that changes with how busy you are, which makes it useless for deciding anything. Contribution margin avoids that: it asks only what this job leaves behind.
Where it decides something
The question it answers is whether to take work at a price you are not happy with.
If a job contributes anything above its direct costs, it moves you toward covering overhead. In a quiet period, a job at a thin contribution is better than an idle van, because the overhead is being paid either way.
In a busy period the same job is a bad idea, because it occupies capacity that a better-contributing job would have used. The cost is not the discount, it is the work you could not take.
That is the whole discipline: the same job at the same price is right in February and wrong in July.
The trap
"Contributing something" is not a licence to discount routinely. Every job taken at a thin contribution raises the revenue you need from everything else, and a business that fills its calendar this way is busy, tired, and at break-even all year.
Use it for the marginal decision on a quiet week, not as a pricing policy.