Contribution margin is what remains after variable selling costs (marketplace commission, shipping, payment processing, returns and advertising) are subtracted from gross margin. It is the most honest figure available for what an order actually leaves in the business.
Products that look healthy on gross margin often collapse on contribution margin. Shipping erodes it on heavy or bulky items, while payment processing does the same on low-priced ones. A per-product contribution margin table is the only sound basis for deciding which products deserve ad spend.
Contribution margin = Gross margin − (Commission + Shipping + Payment fees + Returns + Advertising)
Gross margin 120 TRY; commission 45, shipping 35, payment 8, returns allowance 10, advertising 20 leaves a contribution margin of 2 TRY. The product is not actually making money.
Products that look healthy on gross margin often collapse on contribution margin. Shipping erodes it on heavy or bulky items, while payment processing does the same on low-priced ones. A per-product contribution margin table is the only sound basis for deciding which products deserve ad spend.
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