What is a good contribution margin for ecommerce?

Most profitable DTC brands run 40 to 60 percent contribution margin. Below 30 percent makes paid acquisition painful because your payback window stretches past the first purchase. Above 60 percent usually means premium pricing power or direct sourcing, which is defensible but not required.

Should I include fixed costs in variable cost?

No. Keep fixed costs (rent, salaries, your Shopify subscription, ad creative contractors) out of this number. Contribution margin exists precisely so you can see what is left to pay those fixed costs. Lumping them together gives you net profit, which is a different metric.

How do I use contribution margin to set ad budgets?

Your contribution margin per order is your maximum allowable CAC if you want first-order profitability. Most brands target CAC at 60 to 80 percent of contribution margin so the first order is profitable and LTV is pure upside. If your LTV is strong, you can pay up to full contribution margin as CAC and still win long-term.

Why did my contribution margin drop?

Four usual culprits: freight cost increases, supplier price hikes passed through as COGS, a discount code that ran too aggressively, or a shift in mix toward lower-margin SKUs. Pull the last 90 days by SKU. The answer is almost always visible in one of those four buckets.

Profit & Pricing · Free Tool

Contribution Margin Calculator

Contribution margin is the dollars left over from each sale to cover fixed costs and fund growth. Know this number before you approve another discount or ad budget.

Contribution Margin = Selling Price − Variable Cost

Selling price ($)

Variable cost per unit ($)

Sales volume (units, optional)

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How to use this Contribution Margin Calculator

Contribution margin tells you what each sale contributes toward covering fixed costs (rent, salaries, software) and generating profit. Gross margin looks at COGS only. Contribution margin is stricter: it subtracts every variable cost, including payment fees, picking and packing, and shipping. That is the number that actually matters when you decide whether a promo, a new channel, or an ad budget makes sense.

Run this per SKU, not just brand-wide. Your average contribution margin hides the products losing money. A 35 percent brand average often masks hero SKUs at 55 percent subsidizing dead weight at 12 percent. Once you see the spread, you can reprice the losers, kill them, or bundle them with a hero so the combined margin is acceptable.

Use total contribution (margin times volume) to prioritize. A 60 percent margin SKU that sells 20 units a month contributes less than a 30 percent margin SKU that sells 400. Neither percentage nor volume alone tells you where to put your attention.

Frequently Asked Questions

Gross margin subtracts only COGS from revenue. Contribution margin subtracts every variable cost: COGS, shipping, payment processing, pick and pack, and per-order software fees. Contribution margin is lower but more useful. It tells you what each sale actually contributes toward fixed costs and profit.

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