Profit margin calculator
Last reviewed
Contribution margin is what each order leaves after product cost, shipping, fees and ads. It is the number that tells you which products actually make money.
What is a profit margin?
A profit margin is the share of the selling price you keep after costs. There are three common versions, and each subtracts more costs than the last: gross margin, contribution margin and net margin. For deciding which products to push, reorder or drop, contribution margin is the one that matters.
The formulas
Gross margin = (price − product cost) ÷ price
Contribution margin = (price − product cost − shipping − fees − ads) ÷ price
Net margin = (revenue − all costs, including overheads) ÷ revenue
Use the landed product cost: what you paid the supplier plus freight, duty and other costs to get it into your warehouse.
Worked example
A product sells for $40. It costs $12 landed, shipping and packaging cost $7 an order, platform and payment fees take 6% ($2.40), and ads cost $10 for each order they bring in.
- Gross margin: (40 − 12) ÷ 40 = 70%
- Contribution: 40 − 12 − 7 − 2.40 − 10 = $8.60 an order
- Contribution margin: 8.60 ÷ 40 = 21.5%
A 70% gross margin looks excellent. Once each order has paid its own shipping, fees and ads, about a fifth of the price is left for overheads and profit. Raise the ad cost per order to $19 and the same product loses money on every sale.
Why revenue rankings mislead
Sort products by revenue and the best seller sits at the top. Sort the same list by contribution and the order often changes. Heavy, cheap or ad-dependent products sink, and quiet repeat sellers rise. Checking contribution per product before you reorder or raise an ad budget stops you scaling a product that loses money.
Doing this for every product
One order on one product is easy. Doing it for every product means each order’s real shipping cost, the fees of each sales channel, and ad spend split across the products it sold. That’s the work a profit analytics tool does by reading your store, marketplaces and ad accounts directly.
Frequently asked questions
What is the contribution margin formula?
Contribution margin = selling price − variable costs, where variable costs are everything that comes with each order, such as product cost, shipping, payment and platform fees, and ad spend. As a percentage, divide it by the selling price.
What is the difference between gross margin and contribution margin?
Gross margin only subtracts the product cost. Contribution margin also subtracts the other costs each order brings, such as shipping, fees and ads. A product can have a healthy gross margin and still lose money on every order once ads are paid.
What is net profit margin?
Net profit margin subtracts everything, including fixed overheads such as rent, salaries and software, and divides by revenue. It is a whole-business number. Contribution margin is the per-product number that tells you which products pay for those overheads.
Where do I find my ad spend per order?
Divide a product's ad spend for a period by the orders it got in that period. If your ad accounts report spend by campaign rather than product, split each campaign's spend across the products it advertises.