Contribution Margin
Revenue minus all variable costs — the amount each order contributes to fixed costs and profit.
Definition
Contribution margin is calculated by subtracting all variable costs (COGS, shipping, payment processing, returns, ad spend) from revenue. It is the amount each order contributes to covering fixed costs and generating profit.
Why It Matters for Shopify Brands
Contribution margin is the most important profitability metric for Shopify brands. Many brands are profitable on gross margin but unprofitable on contribution margin after accounting for all variable costs including ops and advertising.
Benchmarks
Healthy contribution margin by channel: DTC Shopify 30–50%, wholesale 15–30%. Below 20% DTC contribution margin signals structural profitability issues.
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