What is Contribution Margin?
Contribution margin shows how much a product "contributes" toward covering fixed costs after all variable costs are deducted. The evolved version of margin.
Formula
Example
If a product sells for $50, COGS is $20, shipping $4, payment fee $1.25, and ad cost per order is $7.50, then: CM = $50 − ($20 + $4 + $1.25 + $7.50) = $17.25 (34.5% CM%)
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Related Terms
Gross Margin
Gross margin is the difference between revenue and COGS, as a percentage. With the median e-commerce net profit at 3%, this number determines viability.
Net Margin
Net margin is the profit percentage remaining after all costs (COGS, ads, shipping, operations). The e-commerce median is just 3% — every percentage point matters.
COGS (Cost of Goods Sold)
COGS is the direct cost of products sold: purchase price + inbound shipping + duties. The landed cost is the number you actually need to know.
ROAS
ROAS (Return on Ad Spend) measures how much revenue you earn for every unit of currency spent on ads. Important: this is revenue, not profit.