Contribution Margin
Contribution margin is revenue minus all variable costs: landed COGS, marketplace and payment fees, outbound shipping, and advertising cost per order. It's what each order contributes toward fixed costs and profit. Gross margin tells you if the product works; contribution margin tells you if the order works, after the platform and the ad auction take their cut. It's the number that should govern ad spend.
Run the math on a typical DTC order. Average order value $40. Landed COGS $14, payment and platform fees $2.60, shipping $5.40, ad cost per order $11. Contribution margin: $7, or 17.5%. That's a workable business. Now let the ad cost creep to $18, which happens quietly as auctions tighten, and contribution margin goes to negative $4. Every additional order now costs you $4, and "scaling" means losing money faster.
Sellers who only watch blended P&L profit catch this months late, because strong back-catalog SKUs mask the bleeders. Contribution margin at the SKU and channel level catches it the month it starts. That requires real landed costs and fees mapped per channel, which is exactly the structure our monthly bookkeeping builds, with SKU-level detail available through custom integrations when the catalog is large.
Where this shows up in our work
This isn’t textbook material for us; it’s the day-to-day of keeping seller books right. See how we handle it in practice:
Monthly Ecommerce Bookkeeping→