E-commerce

Contribution margin

What is left from a sale after the costs that come with it, such as product cost, delivery, payment fees and often the ad spend.

What it is

It is the money each order contributes to fixed costs and profit. Different definitions include or exclude ad spend, so state which one is used.

Why it matters

For e-commerce

It is the honest measure of whether advertising makes money, and the basis for break-even targets.

How it is measured

FormulaContribution margin = revenue - variable costs of the order

Subtract the variable costs of each order from its revenue; read it per product and per channel.

A common mistake

Leaving out returns and delivery, which can turn an apparently profitable channel into a losing one.

All terms

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