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Contribution margin for ecommerce ads

Revenue pays for nothing until the costs of the order are taken away. Contribution margin is the number that tells you how much room the ads have.

The calculation

Start with the order value and subtract what the order itself costs: product cost, shipping you pay, payment fees, packaging and expected returns. Do not subtract ad spend. What remains is the contribution margin.

  • Express it as a share of revenue so it can be compared across products.
  • Calculate it per product group, because margins differ more between groups than between months.

Why it matters for ads

  • Break-even ROAS is one divided by the contribution margin share. A thinner margin needs a higher ROAS to cover the same spend.
  • A product with a low margin can look good in a ROAS report and still lose money.
Example with made-up numbers: an order of 50 has 24 left after product, shipping, fees and returns. The margin is 24 / 50 = 0.48, so break-even ROAS is 1 / 0.48, about 2.08.

Decisions to write down

  • Whether taxes and shipping paid by the customer are in the order value.
  • How returns are estimated and when the estimate is revised.
  • Which costs are included, so the figure does not change quietly between reports.

Keep it current

Review the margin when supplier prices, shipping rates or discount rules change. Enter product costs once per group and update them in one place.

6 min read. Last updated 2026-10-07. Examples use made-up numbers.

This guide in numbers

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Terms in this guide

Contribution marginBreak-even ROASAOV

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