Total sales, or the price of one unit.
Costs that grow with each sale: goods, shipping, payment fees, packaging, and ad spend if you count it per order.
Contribution margin
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Enter revenue and variable costs.
- Contribution margin ratio
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The contribution margin formula
Contribution margin = revenue − variable costs; contribution margin ratio = contribution margin ÷ revenue × 100
Example: A product sells for $50, and the goods, shipping and payment fees cost $30: $50 − $30 = $20 contribution margin, and $20 ÷ $50 × 100 = a 40% contribution margin ratio.
What is contribution margin?
Contribution margin shows how much each sale adds toward fixed costs, such as rent and salaries, and then profit. Unlike gross margin, it subtracts every cost that rises with sales, not only the cost of the goods.
Ecommerce teams often count marketing as a variable cost too, to see what each order really leaves after the ads that brought it. Whatever you include, keep it the same from month to month.
How to raise your contribution margin
- Raise prices or reduce discounts where demand holds.
- Cut cost per order: shipping, packaging, payment fees and returns.
- Sell more of the products with the best margins, and bundle low-margin items with them.
- Lower the ad cost per order by moving budget to channels with better returns.
What contribution margin doesn't tell you
- A product with a positive contribution margin can still lose money once fixed costs are counted; the margin has to cover them over enough sales.
- Which costs count as variable is a choice. Compare margins only when they were worked out the same way.
OneLence helps marketing teams find growth opportunities, know what to do next, and grow more efficiently without simply spending more. It puts ads, search, AI assistants and affiliate partners side by side, with the visitors and sales each one brings, and says where to invest, hold or cut back. See how it works.
Frequently asked questions
How do you calculate contribution margin?
Subtract variable costs from revenue. A $50 product with $30 of variable costs has a $20 contribution margin. Divide by revenue for the ratio: 40%.
What is the difference between contribution margin and gross margin?
Gross margin subtracts only the cost of goods sold. Contribution margin subtracts every variable cost, such as shipping, payment fees and often marketing, so it is usually lower.
Can I calculate contribution margin per unit?
Yes. Enter the price of one unit as revenue and the variable cost of one unit. The ratio is the same per unit and in total when costs scale evenly.
Should ad spend count as a variable cost?
For ecommerce, often yes: counting ad spend per order shows what each order leaves after paying for the ads. Say so when you share the number.
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