Contribution Margin Calculator

Contribution margin in eCommerce is the revenue remaining after subtracting all variable costs associated with a sale. For Shopify brands, this typically includes cost of goods sold (COGS), shipping and fulfillment, payment processing fees, discounts, and ad spend.

Unlike gross margin, contribution margin includes advertising costs - which makes it far more useful for paid media decision-making.

This metric tells you how much money each order contributes toward covering fixed expenses (like payroll, software, and overhead) and ultimately generating profit.

If you are running paid ads, contribution margin is one of the most important financial metrics in your business.

ROAS (Return on Ad Spend) only tells you how much revenue was generated from advertising. It does not tell you whether that revenue was profitable.

For example, a 3.0 ROAS might look strong in Meta Ads Manager. But if your contribution margin only supports a 2.2 breakeven ROAS, you may still be losing money at scale.

Contribution margin connects advertising performance to real profitability. It shows you whether your paid media is building cash flow - or quietly draining it.

Scaling based on ROAS alone is risky. Scaling based on contribution margin is strategic.

Breakeven ROAS is the minimum return on ad spend required to avoid losing money on each sale.

It is calculated by dividing 1 by your contribution margin percentage.

For example, if your contribution margin is 40%, your breakeven ROAS is 2.5. That means you must generate $2.50 in revenue for every $1.00 spent on ads just to break even.

Understanding your breakeven ROAS helps you:

• Set realistic ad performance targets

• Avoid scaling unprofitable campaigns

• Make informed bidding decisions

• Protect cash flow during growth

For Shopify and DTC brands, contribution margin should include all variable costs tied directly to generating a sale:

• Cost of goods sold (COGS)

• Shipping and fulfillment

• Packaging

• Payment processing fees

• Discounts and promotions

• Advertising costs

Fixed costs like salaries, rent, and software subscriptions are not included in contribution margin calculations. Contribution margin shows what is available to cover those fixed costs after each sale.

When you understand contribution margin, you can model profitability across different ad spend and ROAS combinations.

This allows you to:

• Forecast profit at higher spend levels

• Determine your allowable customer acquisition cost (CAC)

• Decide when scaling becomes risky

• Identify which SKUs are most profitable to promote

• Confidently increase budgets without guessing

Contribution margin transforms paid media from a gamble into a controlled growth system.

Yes - and you should.

By adjusting ad spend, ROAS, average order value (AOV), or cost assumptions, you can model how profitability changes at each level.

This allows you to answer questions like:

• What happens if we double spend?

• What ROAS do we need to maintain at $50,000/month in ads?

• Can we afford to run a 15% discount?

• How does a higher AOV affect breakeven ROAS?

This type of modeling is what allows high-performing Shopify brands to scale sustainably.

Many brands focus on top-line revenue growth without fully understanding their unit economics.

Without clarity on contribution margin, breakeven ROAS, and target ROAS, it’s easy to scale revenue while shrinking profit.

Understanding these numbers ensures your growth strengthens your business instead of straining it.