Contribution margin

Contribution margin is revenue minus the variable costs of an order (product cost, shipping, payment fees, returns), usually shown as a share of revenue.

Stock photos and example labels, not customers.

Definition

Contribution margin is revenue minus the variable costs of an order (product cost, shipping, payment fees, returns), usually shown as a share of revenue.

FormulaContribution margin % = (revenue - variable costs) / revenue

Example with made-up numbers: An order of 100 with 35 product cost, 10 shipping and fees, and 5 expected returns leaves 50. Contribution margin = 50%.

How to use it

It is the money left per order to pay for advertising and then fixed costs. It is the right base for break-even ROAS and for deciding how much you can pay to acquire a customer.

Keep the definition written down per client. Two people can both say 'margin' and mean different things.