In plain words
A margin waterfall starts at an order's revenue and subtracts each cost in turn, one step per cost, until it lands on the margin. Read as a chart, each step is a bar that takes the running total down.
It answers two questions a single margin figure can't. Which costs are large enough to be worth working on, and which costs a given offer changes. A gift moves the product cost and the picks. Free shipping moves the revenue at the top. The label stays where it is in both.
Formula
- Margin = revenue − cost₁ − cost₂ − … − costₙ, each cost shown as its own step
Worked example
The $40.00 bag steps down by $12.00 for the product, $1.18 to pick and pack, $0.50 for the box, $7.50 for the label, $1.16 and $0.30 in card fees and $2.00 for the refund reserve. The steps sum to $24.64 and leave $15.36.
On the three-bag order only three steps grow: the product to $36.00, the picks by $0.40, and the costs that are a share of revenue. The label is still $7.50.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
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.
A waterfall is not a list of percentages of revenue
Stating every cost as a share of revenue suggests they all scale with price. Most do not. The label costs the same on a $40 order and a $102 one. A waterfall in money, with each cost at the grain it is charged, shows what a change in the order will really do.
Using it
Draw one waterfall per option of an offer and put them side by side. The steps that differ between options are the offer's real effect. Look hardest at the steps that do not shrink when the price does: they are why a discount costs more margin than it seems to.
In Offer Suite
Offer Suite's engine returns every order's margin as a waterfall: one entry per cost kind the brand has entered, each counted once at its grain, in whole cents.
Source: Offer Suite's margin engine.