Contribution Margin
What's left of each sale after every cost that moves with it.
What it means
Contribution Margin is the share of Total Sales left after every cost that moves with volume: product cost (COGS), tax, shipping, payment gateway fees and the Ad Spend that won the order. It's a percentage of Total Sales for the selected period, struck before fixed costs like rent, salaries and software. At 25%, every €100 of sales leaves €25 to cover those.
Show the math
Formula and a worked example
Contribution Profit is Total Sales minus tax, shipping, Ad Spend, product cost (COGS) and payment gateway fees. Total Sales is what customers paid, after discounts and returns.
Worked example. A month brings €100,000 of Total Sales. Product cost is €42,000, shipping €8,000, payment fees €2,000, tax €3,000 and Ad Spend €20,000 — €75,000 of variable cost, so Contribution Profit is €25,000. Contribution Margin = 25,000 ÷ 100,000 = 25%.
Gross Margin that same month is 58%, because product cost is all it subtracts. The 33-point gap is what it costs to deliver the order and to win it.
It answers the question
Does the next order add money to the business, or take some away? Healthy and positive, selling more makes you money; thin or negative, growth loses it faster.
Why it matters
Your fixed costs don't care how many orders you ship. The rent is the same whether you sell 10 things or 1,000, and Contribution Margin is what each sale puts towards paying it.
That makes it the number to check before you raise a budget, because Total Sales can climb all year while this falls and leave the store busier and poorer. When it slips, check % Shipping Cost% Shipping CostHow much of sales fulfilment eats up.Under 6% is healthy and % Gateway Cost% Gateway CostPayment fees as a share of your sales.Under 2.5% is healthy on this page, and % Product Discounts% Product DiscountsHow heavily a product is marked down.Under 8% is healthy on Shopify Products.
What good looks like
These bands assume ads sit inside your variable costs, which is how the app counts them. A store that barely advertises clears 30% easily; one buying most of its growth won't, and that's a choice rather than a fault. The honest test is the gap between this and Gross MarginGross MarginProfit after product cost; the ceiling on what you can spend to grow.60% or more is healthy — your tax, shipping, fees and ads in a single number.
How to improve it
| Lever | What you do | Expect | How long | Watch out for |
|---|---|---|---|---|
| Fast Tighten the discount codes | Stop sitewide codes and exclude your thinnest-margin ranges from the rest | Contribution Margin up 2–4 points | 2 weeks | Deal-driven customers buy less. Orders and new customers usually dip before the margin gain shows. |
| Fast Raise the free-shipping threshold | Move the free-delivery line to around 20% above your current AOV, so an average basket needs one more item to clear it | % Shipping Cost down 1–2 points | 2–3 weeks | Some carts abandon at the checkout. You trade a share of small orders for margin on the ones that stay. |
| Slow Put the budget behind wider-margin products | Shift Ad Spend from your hero product to the ranges that keep more per sale | Same spend, more Contribution Profit | 4–6 weeks | Growth slows while it beds in. Your cheapest product to advertise is rarely your most profitable one. |
| Slow Renegotiate carriers and shrink packaging | Re-tender your shipping rates and cut box sizes to drop a weight band | Contribution Margin up 2–5 points | 1 quarter | Nothing moves for months, and the better rate usually comes with a volume commitment you have to keep hitting. |
Every lever costs something somewhere. The last column is the one to read twice.
Read it with
Contribution Margin on its own tells you what a sale leaves. Next to your ad spending, it tells you whether to raise the budget or hold it.
Ads are earning their place
You spent more and still kept more of every sale. This is the pattern worth pushing while it holds.
Cleaner but smaller
Margin improved because you stopped buying sales. Healthy for a period, risky as a habit.
Paying more for the same
Each extra order is costing more than the last one did. Fine for a launch, not for a quarter.
It isn't the ads
Spend fell and margin still dropped, so the money is leaking somewhere else — delivery, fees or product cost.
The distance between them is everything that isn't product cost. A steady Gross Margin with a falling Contribution Margin means your sourcing is fine and your delivery or acquisition is not. Neither number alone separates the two.
The distance here is your fixed cost, written as a share of sales. A healthy Contribution Margin with a poor Net Profit Margin means the selling works and the overhead is too big for this size of store — a different fix from a pricing problem, and only the pair tells you which you have.
Common misreads
It's the margin before rent, salaries and software. A store at 28% on €90,000 of monthly sales keeps €25,200 — and loses money if the fixed costs are €30,000. Only Net Profit Margin answers that.
Check Cost Settings first. A cost you haven't entered counts as zero, so a new product added without one moves this number while nothing changed in the business.
Here it is, deliberately. Ads scale with orders like any other variable cost, so counting them makes the number answer whether you can afford to sell more.
Also called
CM · contribution margin ratio · variable margin · margin after variable costs
See yoursYour Contribution Margin for the period, with every variable cost line broken out country by country underneath it.
Open Shopify Profit →