Contribution Margin = Gross Profit minus shipping, payment fees, transaction fees, and taxes. It's the money left after fulfilling each order — before overhead and ad spend. No competitor surfaces it.
A positive CM means every order contributes to covering overhead. A negative CM means you lose money on every sale — regardless of ad spend.
CM isolates shipping and payment processing costs. If CM is low but gross margin is healthy, you have a fulfillment problem, not a pricing problem.
CM feeds into POAS (Profit on Ad Spend). Without CM, POAS can't exist — and without POAS, you're optimizing ads blindly.
Two products with very different gross margins can have completely different contribution margins once you account for fulfillment costs:
Product B is more profitable to fulfill (37% CM vs 32%) even though it has lower gross margin (45% vs 60%)
Check contribution margin with/without free shipping. If CM drops below 15%, you're funding shipping out of overhead. Not sustainable long-term.
Compare CM of discounted vs full-price orders. A 20% discount might reduce CM from 40% to 25%. Scale it only if acquisition value justifies it.
Shipping costs vary wildly by destination. NetNet shows CM by country. Maybe your US market is 35% CM but EU is only 18%.
Only scale products with positive CM that covers your fixed overhead (salaries, rent, etc.). Negative CM products drain cash faster as you grow.
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