{"id":2732,"date":"2026-08-20T12:41:39","date_gmt":"2026-08-20T10:41:39","guid":{"rendered":"https:\/\/mairateam.com\/?post_type=glossary&p=2732"},"modified":"2026-08-20T15:55:51","modified_gmt":"2026-08-20T13:55:51","slug":"contribution-margin","status":"publish","type":"glossary","link":"https:\/\/mairateam.com\/en\/glossary\/contribution-margin\/","title":{"rendered":"Contribution margin"},"content":{"rendered":"

Contribution margin<\/strong> is revenue after variable costs: cost of goods, shipping, packaging, payment and marketplace fees. It is the amount each order leaves behind to pay for advertising and fixed costs. Without it there is no way to calculate POAS, break-even ROAS or any meaningful campaign target.<\/p>\n

In short<\/h2>\n\n\n\n\n\n\n
Formula<\/strong><\/td>\nContribution margin = revenue minus the order's variable costs<\/td>\n<\/tr>\n
What variable costs are<\/strong><\/td>\nCost of goods, shipping, packaging, payment and marketplace fees, returns<\/td>\n<\/tr>\n
What does not belong<\/strong><\/td>\nFixed costs: rent, salaries, systems. Those get paid out of the margin's total<\/td>\n<\/tr>\n
Its job in marketing<\/strong><\/td>\nIt sets what a conversion may cost and which ROAS is the real zero<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

How it is calculated<\/h2>\n

Step by step<\/h3>\n

The calculation runs per order and is then summed per category or per period.<\/p>\n

    \n
  1. Revenue net of VAT<\/strong> after discounts and coupon codes. Shipping paid by the customer belongs in revenue too.<\/li>\n
  2. Cost of goods<\/strong> net of VAT, including inbound freight and duties.<\/li>\n
  3. Fulfillment costs:<\/strong> outbound shipping, packaging and packing materials, any fulfillment fee.<\/li>\n
  4. Payment and sales channel fees:<\/strong> payment gateway, cash on delivery, marketplace or price comparison commissions.<\/li>\n
  5. Returns:<\/strong> the expected share of returned orders times the cost of one return (return shipping, inspection, restocking, any write-off).<\/li>\n<\/ol>\n

    Revenue minus items 2 to 5 is the contribution margin in currency terms. Divided by revenue it becomes the contribution margin as a percentage, which is what break-even ROAS and target POAS work with. Summed over a month, the same five items give the margin per category, which is the level campaign targets need.<\/p>\n

    Example calculation<\/h3>\n

    Worked example: one order in an apparel e-shop.<\/p>\n\n\n\n\n\n\n\n\n
    Revenue net of VAT (the customer paid \u20ac363 including 21% VAT)<\/td>\n\u20ac300<\/td>\n<\/tr>\n
    Cost of goods (60% of revenue)<\/td>\n\u20ac180<\/td>\n<\/tr>\n
    Outbound shipping and packaging<\/td>\n\u20ac12<\/td>\n<\/tr>\n
    Payment gateway fee (1.5%)<\/td>\n\u20ac4.50<\/td>\n<\/tr>\n
    Returns reserve (5% of orders \u00d7 \u20ac30)<\/td>\n\u20ac1.50<\/td>\n<\/tr>\n
    Contribution margin = 300 minus 198<\/strong><\/td>\n\u20ac102, or 34%<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    Out of the \u20ac102, customer acquisition and a share of fixed costs both get paid. If the order has to contribute \u20ac30 to overhead and profit, advertising may cost at most \u20ac72 per order, which corresponds to a target ROAS of 300 \/ 72 = 4.17. Advertising at \u20ac102 per order is the zero line, break-even ROAS 300 \/ 102 = 2.94.<\/p>\n

    What not to confuse it with<\/h3>\n

    Margin is calculated on the selling price, markup on the purchase price. Goods bought for \u20ac180 and sold for \u20ac300 carry a 67% markup but a 40% gross margin, and after fulfillment, fees and returns a 34% contribution margin. Campaign targets always rest on margin over revenue, never on markup. Contribution margin is the number before advertising is subtracted; after subtracting it, what remains is the contribution after marketing, and only that pays for fixed costs. And it is calculated on prices net of VAT: whoever plugs in the VAT-inclusive price counts \u20ac63 of tax that is not theirs as margin.<\/p>\n

    Why it is the base number of performance marketing<\/h2>\n

    A worked example: an order of 200, goods cost 120, shipping and packaging 15, payment fees 5. The contribution margin is 60, meaning 30 percent. Out of those 60 the customer acquisition and a share of fixed costs both have to be paid. When advertising costs more than 60 per order, the company loses money regardless of how good a revenue-based ROAS on the 200 looks. Any campaign target that does not start from this number is just a wish.<\/p>\n

    From our own practice<\/h2>\n

    When we take over accounts, a missing margin layer is the most common reason campaigns look good while the business does not. We see it repeatedly across EUR 52 million of managed spend: target ROAS values tend to be set by feel, without knowing which value is the real zero. So the first step is always the same: calculate contribution margin at least per category, derive break-even ROAS from it, and only then tune targets. With broad-assortment clients it routinely turns out that categories sharing one target ROAS have their real zero in different places, and part of the budget flows into losses.<\/p>\n

    Common mistakes<\/h2>\n