Foundation · 2 min
What you need to know
What is contribution margin in ecommerce?
Contribution margin is net order revenue minus the variable costs required to generate and serve that order. It shows what remains to cover fixed costs and profit.
Gross margin vs contribution margin: what’s the difference?
Gross margin subtracts cost of goods sold from net sales; contribution margin also subtracts defined variable costs such as payment fees, fulfillment, shipping subsidy, returns and possibly marketing.
How do I calculate contribution margin per order?
Begin with net order revenue, including separately defined shipping income, then subtract COGS and every variable order cost in the reporting policy. Label whether marketing and expected return cost are included.
Why should merchants measure profit per order?
Profit per order reveals whether sales cover the costs they create and which products, discounts or channels weaken economics. Store-level averages can hide many loss-making orders.
Can free shipping make profitable orders unprofitable?
Yes. When the merchant absorbs shipping and related fulfillment cost, an order that was profitable before shipping can become unprofitable. Evaluate the threshold using contribution distribution.
Can discounts increase sales but reduce contribution margin?
Yes. Discounts may produce more orders while reducing contribution on each discounted order and shifting full-price demand. Judge incremental total contribution, not sales volume alone.
A quick store check
Calculate contribution for a normal order, a discounted order and a free-shipping order using the same cost rules.
Foundation · 2 min
Frequently asked questions
Can contribution margin be negative on a completed order?
Yes. Discounts, product cost, payment fees, fulfillment, shipping subsidy and returns can exceed net order revenue.
Should contribution include advertising cost?
State the level: pre-marketing contribution excludes it, while post-marketing contribution includes attributable acquisition cost.