Contribution margin is what a sale leaves behind after the costs that only exist because the sale happened: the goods, the parcel, the payment fee, the advertising. Whatever remains contributes to fixed costs and then to profit, which is what makes it the margin to steer an ecommerce store on.
The test for what belongs in it is simple: would this cost disappear if the order had not happened? The goods would not have been bought, the parcel not shipped, the fee not charged, and, at the level of the whole month, the advertising not needed. Rent, salaries and software fail the test; they are the fixed block the contribution has to cover.
It matters because it is the only margin that answers the question 'should I sell more of this'. Gross margin stops at the goods. Net profit mixes in rent and salaries that have nothing to do with the individual order. Contribution margin sits exactly in between: everything the order caused, nothing it did not. It works per order and per month at once, and both readings matter, one for pricing and one for planning.
In ecommerce it is normally split into three levels, CM1, CM2 and CM3, so you can see which kind of cost moved. Each level subtracts a different kind of cost, and the whole ladder is walked through in CM1, CM2 and CM3 explained.
Worked through on the example store the calculators use: an €85 order loses €32,30 to goods, leaving CM1 of €52,70. The parcel takes €6,40 and the payment fee €1,62, leaving CM2 of €44,68. The month's ad budget spreads to about €21,25 per order, leaving roughly €23,43 of CM3. That is the euro amount one order actually contributes towards rent, salaries and profit, and it is a long way below the 62% the first line suggested.
The contribution margin calculator lays those layers out for your own numbers, in euros and as shares of net revenue, on the same lines the product computes.
