Free calculator · Per order, after ad spend

Contribution Margin Calculator.

Contribution margin is what a sale leaves after the costs that come with it. Enter one order: the price, cost of goods, shipping, payment fees and the ad cost of winning it. You get the margin in dollars and percent, and the most you can pay in ads per order before it loses money.

The formulas

Contribution margin = revenue minus variable costs. Contribution margin ratio = contribution margin ÷ revenue.

Per order: price minus cost of goods, shipping, payment fees and ad cost per order.

Only need the margin after cost of goods? Use the gross margin calculator.

Result

Contribution margin after ads (CM3)

$40.49

31.1% of revenue per order

Gross margin (CM1)

$85.00

65.4% after cost of goods

Before ads (CM2)

$70.49

54.2% after shipping and fees

Break-even ad cost per order

$70.49

The most an order can carry in ad spend.

Break-even ROAS

1.84x

Revenue ÷ CM2, after every variable cost.

Where each order's revenue goes

Revenue per order and each variable cost
Revenue	$130.00	100.0%
Cost of goods	minus $45.00	34.6%
Shipping and fulfilment	minus $12.00	9.2%
Payment fees	minus $2.51	1.9%
Other variable costs	minus $0.00	0.0%
Ad cost per order	minus $30.00	23.1%
Contribution margin	$40.49	31.1%

Reading the result

Each order leaves $40.49 after every variable cost including ads, a contribution margin of 31.1 percent. You could pay up to $70.49 in ads per order before it loses money, a break-even ROAS of 1.84x.

Gross margin calculator Break-even ROAS calculator MER and POAS calculator

Worked example

Contribution margin on a $130 order.

The numbers loaded in the calculator above: a $130 order ex GST, $45 of goods, $12 to ship it, card fees of 1.7 percent plus 30 cents, and $30 of ad spend to win it.

Example inputs, not benchmarks. Shares are of revenue per order.
Line	Per order	Share
Revenue (order value, ex GST)	$130.00	100.0%
Cost of goods	minus $45.00	34.6%
CM1, gross margin per order	$85.00	65.4%
Shipping and fulfilment	minus $12.00	9.2%
Payment fees (1.7% plus $0.30)	minus $2.51	1.9%
CM2, contribution before ads	$70.49	54.2%
Ad cost per order	minus $30.00	23.1%
CM3, contribution after ads	$40.49	31.1%

The break-even ad cost per order is the CM2 figure, $70.49: spend more than that to win an order and the order loses money. As a ROAS target, that is $130 ÷ $70.49 = 1.84x. A sum based on gross margin alone, $130 ÷ $85 = 1.53x, leaves out shipping and fees and sets the bar too low.

CM1, CM2, CM3

What are CM1, CM2 and CM3?

They are contribution margin taken in three steps, each one subtracting another layer of variable cost. Many online retailers report margin this way to see where it goes between the product and the profit.

Definitions vary between businesses and tools; this is how this calculator splits them. Figures from the worked example above.
Level	What it subtracts	Example	What it tells you
CM1	Cost of goods	$85.00 (65.4%)	Whether the product is priced for profit. The same as gross margin per order.
CM2	CM1 minus shipping, payment fees and other variable costs	$70.49 (54.2%)	The most an order can carry in ad spend before it loses money.
CM3	CM2 minus ad cost per order	$40.49 (31.1%)	What each order contributes to fixed costs and profit.

What is the difference between contribution margin and gross margin?

Gross margin subtracts only the cost of goods. Contribution margin subtracts every cost that comes with the sale, including delivery, payment fees and, in this calculator, the ads that won the order.

Gross margin is the right number for pricing and for the gross margin calculator. Contribution margin is the right number for deciding how much an order can afford in ad spend.

Should contribution margin include GST?

Not for a GST-registered business. GST is a 10 percent tax collected on behalf of the ATO, so revenue for margin purposes is the price ex GST. Treat a GST-inclusive $130 as revenue and the example overstates contribution by $11.82: the order leaves $28.67, not $40.49.

General information only, not tax advice. Check your own position with your accountant or the ATO's guide to how GST works.

Frequently asked

Seven questions about contribution margin.

What is contribution margin in simple words?

It is the money a sale leaves after paying the costs that only exist because of that sale: the goods, the delivery, the card fees and the ads that won it. What is left contributes to rent, wages and other fixed costs first, then to profit.

How do you calculate contribution margin?

Take revenue and subtract the variable costs. Per order, that is the price minus cost of goods, shipping, payment fees and ad cost per order. On a $130 order with $45 of goods, $12 of shipping, $2.51 of fees and $30 of ads, the contribution margin is $40.49, or 31.1 percent of revenue.

Is 30% contribution margin good?

It is good if 30 percent of revenue covers your fixed costs with something left over. If rent, wages and software come to 20 percent of revenue, a 30 percent contribution margin leaves 10 percent as profit; if they come to 35 percent, the same margin loses money. Check whether ad spend sits inside your 30 percent before comparing it with anyone else's.

What does 50% contribution margin mean?

Half of every dollar of sales is left after variable costs, ready to pay fixed costs and then profit. On a $100 order, $50 goes on the goods, delivery, fees and anything else the order triggers, and $50 remains.

What is contribution margin vs net margin?

Contribution margin takes off only the costs that rise and fall with each sale. Net margin takes off everything, including fixed overheads, interest and tax. Contribution margin tells you whether each sale pays its way; net margin tells you whether the business does.

What is contribution margin vs EBITDA margin?

EBITDA margin subtracts fixed operating costs such as wages and rent as well as the variable costs, but leaves out interest, tax, depreciation and amortisation. Contribution margin stops before fixed costs, so for the same business it sits above EBITDA margin.

Is contribution margin the same thing as profit?

No. It is profit before fixed costs. A business can make a healthy contribution margin on every order and still lose money if there are not enough orders to cover rent, wages and other overheads.

Related calculators

One order, then the whole business.

Start from the gross margin calculator if you have not pinned down cost of goods yet, or browse all the free calculators. For a second opinion on your own numbers, the free profit audit is a 30-minute call with a senior operator, and you keep the written findings.

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