Contribution margin calculator
Contribution margin is what each sale contributes after its variable costs: price minus variable cost, as a share of price. It is the money available to cover fixed costs, ad spend and profit. Solve it any way, then see the break-even ROAS it sets.
Using typical funnel assumptions, to show that the metric above can’t tell you if you’re winning. Your real numbers live in the full calculator.
Drop in one product and the Target ROAS calculator works your whole P&L backwards to the number that actually decides it, free, no signup.
What is contribution margin?
Contribution margin is what each sale contributes after its variable costs, before any fixed costs. It is the money left to cover overhead and then become profit. Where gross margin looks at product cost, contribution margin counts every cost that moves with the order: product, shipping, payment fees, per-order packaging.
It is the scaling metric. As long as contribution margin per unit is positive and covers your acquisition cost, every extra order moves you toward profit.
How to calculate contribution margin
How to improve contribution margin
- Raise AOV so fixed-dollar costs like shipping and payment fees spread thinner per dollar of revenue.
- Cut variable cost per unit: cheaper inbound freight, lighter packaging, better payment rates.
- Shift the mix toward products with higher contribution per unit, even if their headline margin looks similar.
Gross margin counts product cost only; contribution margin counts every variable cost. Contribution is the truer guide to whether scaling adds profit. Fixed costs (rent, salaries, software) are covered out of total contribution, not per order, so leave them out of the per-unit number.
The operator’s playbook
How a paid-media operator reads this number, not a glossary definition.
Contribution margin is the scaling metric+
Gross margin is after COGS; contribution margin also strips the variable cost of each extra sale (fees, shipping, pick-and-pack). It is the real money each new order frees up, so it is the truest ceiling on what you can pay to acquire that order.
Fixed costs are not in here, on purpose+
Contribution margin ignores rent, salaries and software because those do not change per order. You cover them out of total contribution, not per sale. That is why contribution, not net margin, is the right lens for per-order ad decisions.
Frequently asked questions
How do you calculate contribution margin?
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Contribution margin = (price - variable cost) / price x 100, or in dollars, price minus variable cost per unit. At $100 price and $55 variable cost it is 45%, or $45 per unit.
Contribution margin vs gross margin?
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Gross margin subtracts cost of goods. Contribution margin subtracts all variable costs, including the variable selling costs gross margin leaves in. Contribution is the better number for per-order acquisition decisions.
What is a good contribution margin?
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High enough to cover your fixed costs and acquisition and still leave profit. There is no single number; a low-AOV brand may live on 40%, a premium one on 70%. Judge it against your fixed-cost base.
Which costs are variable vs fixed?
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Variable costs move with each order: product, shipping, payment fees, per-order packaging. Fixed costs do not: rent, salaries, software. Contribution margin counts only the variable ones.
Why does contribution margin matter for scaling?
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Every order above break-even adds its full contribution margin to profit. As long as contribution beats your acquisition cost, more volume means more profit, which is why it is the scaling metric.
Built by Yehonatan Tav, paid media for ecommerce brands spending $50k to $500k a month. Figures are illustrative; run the logic on your own numbers.