Contribution margin calculator

How it is worked out

• Margin before ads = price minus product cost, shipping, card fees and the share of orders you refund.
• Margin after ads = that minus what you pay in ads for each order (CPA).
• Monthly = margin after ads times orders per month. Staff, rent and apps still come out of this.

Example: a $40 desk organizer

• Costs per order: $15.50 product, $5.00 shipping, $1.50 card fees, $2.00 refunds. $16.00 is left before ads, 40% of the price.
• Ads cost $12.00 per order, so $4.00 is left. That is 10% of the price.
• 500 orders a month leave $2,000 for staff, rent and apps.
• At a $16.00 CPA the store works for nothing. Above it, every order loses money.

Questions

How do you calculate contribution margin?

• Price minus every cost that comes with each order: product, shipping, payment fees, returns and ad cost per order.
• Divide by price to get it as a percentage.

What is a good contribution margin percentage?

• One that covers your fixed costs at the orders you actually get.
• If only 10% of each sale is left after ads, a small rise in ad costs can wipe it out.

What is contribution margin?

• The money one order adds after every cost that comes with it: product, shipping, card fees, refunds and the ads that brought it in.
• Staff, rent and apps are then paid out of it.

Contribution margin vs gross margin: what is the difference?

• Gross margin takes off only the product cost.
• Contribution margin also takes off shipping, card fees, refunds and ads, so it shows what an order really adds.

How do I raise contribution margin?

• Raise order value with bundles. Cut shipping cost per order.
• Lower ad cost per order with better ads. Cut refunds with clearer product pages and sizing.