Contribution margin is what one more order adds after every cost that scales with it. It is the ceiling on what you can pay to acquire a customer, and it is almost always lower than gross margin suggests.
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What the customer paid, excluding tax and shipping
Landed cost — include inbound freight and duty
What the carrier invoiced, not what you charged
Your gateway's percentage rate
Per-transaction amount
Box, filler, insert, pick and pack
At a 49.0% contribution margin your break-even ROAS is 2.04x. Any campaign returning less than that loses money, however healthy the gross margin looks.
The calculation is straightforward and the inputs are where it goes wrong.
Order value should be what the customer actually paid after discount, excluding tax and shipping charged. Using list price overstates margin on anything that appears in promotions.
Cost of goods should be landed cost — supplier price plus inbound freight and duty. Recording only the supplier price understates cost on anything imported, unevenly across the catalogue.
Shipping should be what the carrier invoiced, including surcharges, rather than what you charged the customer. The two are different numbers and the invoice is usually the larger one.
Payment fees need both components. The percentage alone understates small orders badly — thirty cents on a $15 order is 2% on its own.
Compare contribution margin per order against what you pay to acquire a customer. If margin exceeds acquisition cost, each new order contributes toward fixed costs and growth funds itself. If it does not, every additional customer deepens the loss while revenue keeps rising — which is why this comparison catches problems that revenue reports never show.
Then watch the rate rather than the amount. The currency figure rises with volume and reassures; the percentage is what tells you whether growth is being bought with margin.
What one additional order contributes after every cost that scales with it — product, shipping label, payment fees, packaging and fulfilment. It excludes fixed costs like rent and salaries, which is what makes it the right ceiling for acquisition spending.
Because gross margin only deducts the cost of the product. Contribution margin also deducts the cost of serving the order. The gap is typically fifteen to twenty points, and it is money already committed before any marketing is bought.
Break-even ROAS is one divided by your contribution margin rate. At a 50% margin you break even at 2.0x; at 30% you need 3.3x. The calculator shows this because the threshold is a property of your margins, not of the ad platform.
Not in contribution margin. Advertising does not scale cleanly per order, and excluding it leaves a clean ceiling to compare acquisition cost against. Use the full profit calculator if you want the figure after acquisition.
Contribution margin is what an order leaves behind after every cost that varies with it — goods, delivery, payment processing, packaging. It is the money available to cover fixed costs and, beyond that, to be profit.
That makes it the ceiling on what you can pay to acquire the order. Spend more than the margin and the order loses money no matter how good the return on ad spend looked. It is also the number that decides whether a discount is worth running, since a code that pushes margin per order below the undiscounted baseline is buying volume with profit.
Read it as a rate as well as an amount. The currency figure rises with basket size and reassures; the rate is what tells you whether the underlying economics are holding.
Use realised price, not list price. Anything discounted regularly sells below list, and the difference lands entirely in the margin figure.
Use landed cost, not the supplier invoice. Inbound freight and duty are part of what the unit cost you, and on imported goods they are routinely fifteen to thirty percent on top.
Use what shipping cost you, not what you charged. These are different numbers and the gap between them is one of the more common places margin disappears.
Include the flat part of the payment fee. A per-transaction charge is a much larger share of a small basket than a percentage alone suggests.
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