- What contribution margin actually is
- The full formula
- Category benchmarks
- The 6 levers that move CM
- Modeling CM at scale
- FAQs
What contribution margin actually is
Contribution margin is what's left from a sale after all the variable costs that make that specific sale happen — before you get to fixed overhead.
It's the true unit economics of your business. Gross margin lies. ROAS lies. Contribution margin doesn't.
The full formula
CM per order = Selling Price − COGS − Shipping − Payment Gateway Fees − Returns Cost (allocated) − Marketing Cost per Acquired Order
Every variable matters. Miss one, and your CM is fiction.
Example: Skincare brand
- Selling price: ₹1,299
- COGS: ₹310
- Shipping (allocated): ₹70
- Payment gateway: ₹29
- Returns allocation: ₹80
- Marketing per order: ₹410
CM per order = ₹400 (30.8%)
Healthy. Room to scale.
Category benchmarks
- Skincare: 25–35%
- Fashion / Apparel: 15–25%
- Supplements: 30–45%
- Electronics: 12–22%
- Beauty: 20–32%
The 6 levers that move CM
- Pricing power (positioning, bundles)
- COGS reduction (sourcing, volume)
- Shipping optimization (mix, weight, zones)
- RTO reduction (Anti-RTO Engine™)
- AOV lift (upsells, thresholds)
- CAC reduction (creative, funnel, retention)
Modeling CM at scale
Build a per-SKU CM model. Then aggregate weighted by mix. Then stress-test at different spend levels. This is your growth compass.
FAQs
Q: Difference between gross margin and CM?
Gross margin is Revenue − COGS. CM is Revenue − all variable costs including marketing, shipping, returns. CM is the truth.