Contribution margin per order

In plain words

Contribution margin per order is what one order keeps, in dollars, after every cost the order causes. It is the contribution margin stated at the level an offer actually sells at: the order.

The order is the right level because costs are charged there. A label and a pick-and-pack fee are paid once per order, however many units are in the box. A margin worked out per product and multiplied by the units sold misses that, and it gets every bundle wrong.

Formula

• Contribution margin per order = order revenue − every cost of that order
• Order revenue = what the customer paid for the products + what they paid for shipping

Worked example

One $40.00 bag of coffee, shipped free, keeps $15.36 per order. Three bags sold together for $102.00 keep $48.06: more than three single orders would, because the three bags share one label and one base fee.

The same bag on a subscription renewal at $36.00 keeps $11.68. One product, three margins per order.

Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.

Margin per order is not margin per unit times units

Multiplying a per-unit margin by the units in the order charges the per-order costs once for every unit, or not at all. The bundle then looks worse than it is, or the single looks better. Price the order as it ships, then divide if you need a per-unit figure.

Using it

Keep one figure per option of an offer: the single, each bundle tier, the first subscription order and the renewal. When you compare two offers, compare these figures weighted by how many visitors buy each, which is profit per visitor. A report that shows one margin per product hides the options that earn the money.

In Offer Suite

Offer Suite forecasts this figure for every option of an offer version, first order and renewal apart, and reports the realized figure from the orders each option actually sold.

Source: Offer Suite's margin engine.