--- title: "Contribution margin ratio: definition and formula" description: "Contribution margin as a share of revenue. It says how much of each dollar of sales an order keeps, and how fast a discount eats it." url: https://offersuite.io/glossary/contribution-margin-ratio updated: 2026-10-13 --- # Contribution margin ratio Contribution margin as a share of revenue. It says how much of each dollar of sales an order keeps, and how fast a discount eats it. ## In plain words The contribution margin ratio is contribution margin divided by revenue. A ratio of 40% means the order keeps 40 cents of every dollar the customer paid, after the costs the order caused. It is the figure to hold a discount against. A discount comes off revenue at full value, while most costs stay where they were. So a discount takes a much larger share of the margin than of the price. ## Formula - Contribution margin ratio = contribution margin ÷ revenue - Break-even return on ad spend = 1 ÷ contribution margin ratio ## Worked example The $40.00 bag keeps $15.36, a ratio of 38.4%. The three-bag bundle at $102.00 has a ratio of 47.1%, even after its 15% discount. Take 10% off the single bag and it sells for $36.00. The engine puts its ratio at 32.4%: a tenth off the price, and a much larger share off the margin. ### The example order A $40.00 bag of coffee, shipped free, every cost counted Revenue $40.00 to contribution margin $15.36 (38.4%) Revenue $40.00 Cost of goods −$12.00 Pick and pack −$1.18 Packaging −$0.50 Shipping label −$7.50 Card fee per order −$0.30 Refunds −$2.00 Card processing −$1.16 Contribution margin $15.36 2 declared kinds cost nothing on this option 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. ## The ratio is not the money A high ratio on a small order can earn less than a low ratio on a large one. An order that keeps 50% of $20 earns $10. One that keeps 35% of $60 earns $21. Rank offers by the money per order or per visitor, and use the ratio to see how exposed an offer is to a discount. ## Using it Use the ratio to size discounts and ad budgets, and the money to choose between offers. Before a sale, work out the ratio at the sale price, not at the list price. When the ratio differs a lot between options of one offer, the mix of options sold moves the blended ratio as much as any price change does. ## Related - [Glossary **Glossary of offer economics** The terms behind offer profit, defined plainly with their formulas and a worked number: contribution margin, profit per visitor, break-even lift and more.](https://offersuite.io/glossary) - [Calculator **Bundle pricing calculator: shipping, subscriptions** Price a bundle against a single unit, one-time and subscribed, with the shipping and pick costs it saves, and the conversion it can lose and still earn as much.](https://offersuite.io/calculators/bundle-pricing) - [Calculator **Offer option calculator: profit per visitor** Compare up to three offer options on profit per visitor, margin per order times conversion, and see the conversion lift each one needs to match the best.](https://offersuite.io/calculators/offer-option-profit-per-visitor) - [Glossary **Contribution margin: definition and formula** What an order keeps after every cost that grows with it: product cost, fulfilment, shipping, card fees and refunds. The number an offer should be judged on.](https://offersuite.io/glossary/contribution-margin) - [Glossary **Contribution margin per order: definition** The contribution margin of one order, in money. The same product earns a different amount as a single, in a bundle or on a renewal.](https://offersuite.io/glossary/contribution-margin-per-order) - [Glossary **Break-even ROAS: definition, formula and example** The return on ad spend at which an order's margin exactly pays for the ads that won it: one divided by the contribution margin ratio.](https://offersuite.io/glossary/break-even-roas)