What is contribution margin?

Contribution margin is the money an order or product leaves you after paying for the goods and the costs that come with each sale, such as shipping, packaging and payment fees.

How to calculate it

Contribution margin = net sales − cost of goods − variable costs per order

Variable costs are the ones that rise with each order: the shipping you pay the carrier, packaging, payment processing fees and, if you track it per order, ad spend. Fixed costs like rent, software and salaries are left out. As a percentage, divide the result by net sales.

WooCommerce doesn't calculate contribution margin. You can pull net sales and shipping charged from Analytics › Revenue, but carrier costs, payment fees and packaging live outside WooCommerce, in your shipping account, payment provider and invoices. Product costs can come from the core Cost of Goods Sold feature (WooCommerce 10.3 and later) or a plugin.

A worked example

Say an order has $60 in net sales and the customer paid $5 shipping.

• Product cost: $22
• Carrier cost: $8 (you charged $5, so you're $3 short)
• Payment fee: $2
• Packaging: $1

Contribution margin: $60 + $5 − $22 − $8 − $2 − $1 = $32, or about 53% of net sales. Gross margin on the same order would look like 63%.

Why it matters

Contribution margin shows what each sale really adds toward your fixed costs and profit. It often reveals that low-value orders with free shipping barely break even. Askshelf stops at gross profit: it doesn't know shipping costs or payment fees, so it can't give contribution margin. The guide on WooCommerce profit reporting puts the pieces together, and comparing shipping costs and charges covers the most common leak. See also cost of goods sold.