Contribution Margin Calculator

How do you use the contribution margin calculator?

Enter the price of an order and the total variable costs of that order. The calculator shows contribution margin as an amount and as a ratio to price.

1. Price per order. Use what the customer actually pays after discounts, or your average order value.
2. Variable costs per order. Add up every cost that comes with one order (see the checklist below).
3. Read the margin per order and the ratio.
4. Copy the page link to share the result. Only the numbers are stored in it.

What is the contribution margin formula?

Contribution margin is price minus variable costs, and the ratio is that amount divided by price. The Corporate Finance Institute describes contribution margin as revenue less all variable costs, and gives the ratio as revenue minus cost of goods sold and other variable expenses, divided by revenue.

Contribution margin = price − variable costs per order
Contribution margin ratio = contribution margin ÷ price

This calculator works per order, which is the unit that ad metrics such as CPA and ROAS use.

Which variable costs should you include?

Include every cost that goes up by one order's worth each time you sell one more order. Leave out costs you pay whether or not you sell.

Ad spend is not in this list on purpose. Contribution margin is the amount available to pay for ads; the break-even figures below show how much of it the ads may use.

Worked example

Enter these numbers in the calculator above (example numbers, in any currency):

The tool shows the same results:

The two numbers lead straight to the limits for ad spend:

So this product can pay up to 60 in ads per order, which is a ROAS of 2.5, before each order loses money. The break-even ROAS calculator adds break-even CPM, and the Amazon Ads "Ads Math" guide uses the same logic with gross margin: 1 ÷ margin = break-even ROAS.

How do you raise contribution margin?

There are only two levers: a higher price per order or lower variable costs per order. Both change the break-even figures directly.

• Higher order value. Bundles, multi-packs and free-shipping thresholds raise the price per order while some costs (fees per order, packaging) stay close to flat.
• Lower variable costs. Cheaper shipping rates, lower payment fees or lighter packaging all add to the margin per order.

At a price of 150, cutting variable costs from 90 to 81 raises the margin to 69 (0.46), which lowers break-even ROAS from 2.5 to about 2.17. Run your own numbers in the calculator to see the effect before changing anything.

Write down which costs you included next to the result. When a cost changes later, such as a new shipping rate, you can rerun the calculator with the same list and see exactly what moved.

What are the limits of this calculator?

The calculator subtracts and divides. The accuracy depends on your cost figures.

• Averages. If prices and costs vary a lot by product, one average can hide products that lose money. Run the main products separately.
• Returns. Returned orders cost shipping and handling and remove revenue. Add an average returns cost per order, or the margin is too high.
• Discounts. Use the price after discounts and promo codes, not the list price.
• No benchmarks. Margins vary by category, so the tool shows no "good" or "bad" verdict.

Related tools and glossary entries

See the contribution margin glossary entry, with links to break-even ROAS and CPA. The CPA calculator compares your actual CPA with the break-even figure, the ROAS calculator does the same for ROAS, and the LTV calculator uses margin to turn lifetime revenue into lifetime profit. All free tools are on the tools page.

If you want more ad creative to test against these limits, see how Anglr works for brands.