---
title: "Contribution margin: definition and formula"
description: "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."
url: https://offersuite.io/glossary/contribution-margin
updated: 2026-10-13
---

# Contribution margin

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.

## In plain words

Contribution margin is what one order leaves you after every cost that the order itself causes. That means the product's unit cost, and also the warehouse's pick and pack, the box, the shipping label, the card fees and the share of revenue you set aside for refunds. Costs that don't change with one more order, like rent, salaries and software, are left out.

It is the right number for judging an offer, because an offer changes exactly these costs. A gift adds a unit cost and a pick. A bundle saves labels. Free shipping moves shipping revenue. None of that shows up in gross margin.

## Formula

- Contribution margin = revenue − unit costs − fulfilment − shipping label − card fees − refund reserve
- Contribution margin % = contribution margin ÷ revenue

## Worked example

A $40.00 bag of coffee, shipped free. The bag costs $12.00, pick and pack is $1.18, the box $0.50, the label $7.50, card fees $1.16 plus $0.30, and the refund reserve $2.00.

The engine puts the order's contribution margin at $15.36, or 38.4% of what the customer paid.

### 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.

## Contribution margin is not gross margin

Gross margin subtracts only the cost of the goods. On the same bag it is 70%, almost twice the contribution margin, because it ignores shipping, fulfilment and fees. An offer judged on gross margin looks better than it is, and an offer that ships a lot of free parcels can have a healthy gross margin and a thin contribution margin.

## Using it

Work it out per order and per option, not per product. The same product earns a different contribution margin as a single, in a bundle, with a gift or on a renewal, because each changes the fulfilment and the price. When a margin looks too good, check that shipping and card fees are in it: they are the costs most often left out.

## In Offer Suite

Offer Suite's engine calls this figure the order's margin. Its field is named grossMarginCents for historical reasons, but it subtracts every cost kind the brand has entered, so by the usual definitions it is a contribution margin. Card fees in Offer Suite are the order's actual payment fee when it was paid through Shopify Payments and Shopify reports it; otherwise an estimate of 2.9% of revenue plus $0.30 per order, which the brand can change. Forecasts use the estimate. The actual-fee read has not yet run on a live Shopify Payments order.

Source: Offer Suite's margin engine.

## 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)
- [Feature **Forecast and realized profit per offer option** Forecast and realized profit per offer, option, version, item and traffic source from one margin engine in whole cents, with ad spend, realized CAC and subscription LTV.](https://offersuite.io/features/profit)
- [Calculator **Gift with purchase profit calculator** What a free gift costs per order, after its unit cost, its extra pick and its handling, and how much conversion it has to add to pay for itself.](https://offersuite.io/calculators/gift-with-purchase-profit)
- [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)
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- [Glossary **Gross margin: definition, formula and example** Revenue minus the cost of the goods sold, as a share of revenue. The accounting margin: it leaves out shipping, fulfilment and payment costs.](https://offersuite.io/glossary/gross-margin)