What Is Contribution margin? Definition, Formula and Example

Q: How do you calculate Contribution margin?

Contribution margin = revenue − variable costs per order. For example: A ₹1,500 order with ₹600 product cost, ₹120 shipping, ₹45 fees, ₹35 packaging and ₹100 of expected returns keeps ₹600, a 40% contribution margin.

What is Contribution margin?

Contribution margin is the money left from each sale after its variable costs: product cost, shipping, payment fees, packaging and returns.

FormulaContribution margin = revenue − variable costs per order

Contribution margin, not gross margin alone, decides how much you can spend to win an order. It is the basis of break-even ROAS.

Include returns and payment fees; for many D2C categories they're the difference between a profitable and an unprofitable campaign.

Example

A ₹1,500 order with ₹600 product cost, ₹120 shipping, ₹45 fees, ₹35 packaging and ₹100 of expected returns keeps ₹600, a 40% contribution margin.

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