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Contribution margin on each order
Contribution margin is what is left of an order once you have paid everything that order forces you to pay: the product, the shipping, the packaging, the fees and the returns provision. It is not revenue and it is not gross margin. It is the figure you use to pay for advertising, rent, salaries and, if anything survives, profit.
Every calculation runs in your browser. The figures you type are never sent to a server and are never stored.
Your results will appear here
Enter the net revenue and the variable costs of the order to see what is left.
- Net order revenue, excluding tax
- Costs that exist only because that order exists
- Fees and returns provision
Calculation results
Contribution margin
—
What the order leaves after all its variable costs and acquisition.
Contribution ratio—Of net revenue
Margin before advertising—
Break-even CAC—The most you can pay to acquire
Costs before advertising—
See the breakdown
| Net revenue | — |
| Fees | — |
| Product cost | — |
| Packaging | — |
| Fulfillment | — |
| Shipping and logistics | — |
| Other costs | — |
| Returns provision | — |
| Margin before advertising | — |
| Acquisition cost | — |
| Contribution margin | — |
Recommended next step
You know what one order leaves. A returning customer leaves several: the CAC you can afford is considerably higher than the margin on a single sale.
Work out my maximum CACResults are estimates based on the information you enter. Fees, taxes and platform terms can change: always check the figure that matters to you against your invoice or the official platform. They do not replace your real invoices, your official accounts or professional tax, financial or legal advice.
What this tool works out
This ecommerce contribution margin calculator answers one concrete question: of everything an order brings in, how much survives once you have paid what that order cost you?
Four figures get confused constantly. Revenue is what the order bills. Gross margin deducts only the product cost. Contribution margin also deducts everything else that moves with the sale: shipping, packaging, pick and pack, fees and returns. Profit arrives later, once the month's contributions added together have covered your fixed costs.
The distinction matters because a product can show an excellent gross margin and almost no contribution. All it takes is for the shipping you absorb, the payment fee and the returns to eat what the gross margin promised. With none of those costs, the two figures would be the same.
What you need to enter
Only variable costs: the ones that appear because that order exists and vanish if it does not happen. Warehouse rent, your store subscription or your own salary do not belong here, because you pay them whatever you sell.
- Net order revenue, already excluding indirect taxes
- Product cost, packaging, pick and pack, and any shipping you absorb
- Sales fee as a percentage and flat fee per transaction
- Returns provision: what an average return costs you, spread across every order
- Acquisition cost, if you want contribution after advertising
Revenue goes in without tax because that money was never yours: you collect it and hand it over. Including it inflates contribution and convinces you that you can spend more than you can.
How the formula works
Fees come first, and they have two parts: a percentage of revenue and a flat amount per transaction.
fees = net revenue x fee % + flat fee
costs before advertising = product + packaging + pick and pack
+ shipping + other + fees
+ returns provision
margin before advertising = net revenue - costs before advertising
contribution margin = margin before advertising - CAC
contribution ratio = contribution margin / net revenue x 100
Margin before advertising is also your break-even maximum CAC: the absolute ceiling on what you can pay to win that sale without losing money. Paying exactly that figure leaves the order at zero.
A worked example
An order of $100 net, with a $30 product, $2 of packaging, $3 of pick and pack, $4 of absorbed shipping and $1 of other costs. The payment gateway charges 2.9 % plus $0.35 flat, $2.50 is provisioned for returns, and acquisition costs $12.
| Item | Value |
|---|---|
| Net order revenue | $100.00 |
| Fees (2.9 % + $0.35) | $3.25 |
| Total variable costs | $45.75 |
| Margin before advertising | $54.25 |
| Acquisition cost | $12.00 |
| Contribution margin | $42.25 USD |
| Contribution ratio | 42.25% |
Of $100 billed, $42.25 is real. Before advertising there was $54.25, which is exactly the most that could be paid for that sale: $12 of acquisition fits comfortably, $55 does not.
How to read the result
The contribution ratio is calculated over net revenue and lets you compare products at different price points. A $20 item at 40 % contribution leaves $8 per order; a $100 item at 15 % leaves $15. The second returns more cash per sale, the first is more efficient per dollar billed.
Break-even maximum CAC is the figure people misread most. It is not a budget and it is not revenue you can spend: it is the exact point where the order stops contributing anything. Spend all of it and you have worked for free.
And a positive contribution does not mean the business makes money. It means each sale pushes in the right direction. Fixed costs are paid by the accumulated sum of every contribution in the period: a hundred orders at $42 of contribution give you $4,200 to cover fixed costs, and only what survives that is profit.
What to decide next
With contribution in hand, the next question follows on its own: how much can you pay for a customer. The answer is not the margin of one order, because a customer who comes back contributes several times over.
If contribution comes out negative, no advertising tweak fixes it: the product loses money before you spend a cent promoting it. The levers there are price, product cost, the shipping you absorb, or dropping the product.
What this assumes
- Every cost you enter is variable: it moves with order volume
- Revenue is expressed without indirect taxes
- The returns provision is an average already spread across all orders
- The order is representative: a typical basket, not your cheapest or priciest
- Fees apply to the net revenue you entered
What it does not cover
- Fixed costs: rent, salaries, subscriptions or depreciation
- Business profit, which appears only once fixed costs are covered
- The lifetime value of a customer, which needs repeat purchase data
- Corporate tax or withholdings
- Seasonality, stockouts or one-off discounts
Frequently asked questions
What is the difference between gross margin and contribution margin?
Gross margin deducts only the product cost. Contribution margin also deducts everything that moves with the sale: shipping, packaging, pick and pack, fees and returns. That means it is never larger — and it only matches when you have no other variable costs — and it is the one that tells you how much you can invest in winning customers.
Do I include sales tax or VAT in order revenue?
No. Enter net revenue, excluding indirect taxes. You collect that money to hand it over later, so it is not part of what you keep. Include it and contribution comes out inflated, and you will make investment decisions on a figure that does not exist.
Where does the salary of whoever packs the orders go?
It depends how you pay it. A fixed monthly salary does not belong here: you pay it whether you ship a thousand orders or a hundred. If you pay per order packed, or your fulfillment provider bills you per unit, it goes in as pick and pack cost.
What does it mean if contribution is positive but the business loses money?
That every sale helps, but there are not enough sales yet. Contribution covers fixed costs by accumulation: with $3,000 of monthly fixed costs and $42 per order, you need around 72 orders to break even. Below that, each sale still helps and the month still closes in the red.
Is maximum CAC the budget I can spend on advertising?
No, and the confusion is expensive. It is the point where the order stops contributing anything. If your margin before advertising is $54.25 and you pay $54.25 to win the sale, you worked to earn nothing. A sensible budget sits below it, and how far below depends on the profit you want to keep.
What should I do if contribution comes out negative?
Stop advertising that product first: every extra sale deepens the loss. Then review price, purchase cost, the shipping you absorb and the channel fees. If none of those levers move far enough, the product is not sellable on those terms.
Does this work if I sell on a marketplace?
Yes, by entering the channel fee as the percentage and the flat amount. If you sell the same product in several places, each channel has its own costs and its own contribution: comparing them side by side is a different decision from this one.
What should I work out after this?
The most you can pay for a customer, not for an order. A customer who repeats contributes several times, so the real ceiling is considerably higher than the margin on a single sale.
Official sources
Shopify — break-even analysis and contribution marginhttps://www.shopify.com/blog/break-even-analysis
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