Contribution Margin Calculator
See what's actually left after discounts, COGS, RTO, and ad spend, per order, and the max CAC you can afford. Revenue and ROAS on a dashboard hide this number.
Contribution Margin
What is contribution margin, and why doesn't ROAS show it?
Contribution margin is what's left from a sale after every cost that scales with that specific order: COGS, shipping, payment gateway fees, and the ad spend used to acquire it. ROAS only compares revenue to ad spend, so a 4x ROAS and a 1.2x ROAS can both hide a business that's losing money on every order, once COGS, discounts, and RTO are actually subtracted.
Contribution Margin = Net Revenue (after discount) − COGS − Shipping − Payment Gateway Fees − Ad Spend
A worked example
A ₹1,000 order with a 15% discount nets ₹850 in revenue. Subtract ₹350 COGS, ₹90 shipping, roughly ₹17 in gateway fees (2%), and ₹250 in ad spend, and the order clears ₹143 in contribution margin, about 14% of the original selling price. Run a 20% RTO rate through the same order and the blended margin across all orders, delivered and returned, drops further, since RTO orders cost shipping and ad spend with zero revenue to offset them.
What's a healthy contribution margin for a D2C brand?
Fashion and lifestyle D2C brands typically run 10 to 20% contribution margin after all variable costs. Below 10% usually means very little room to fund fixed costs, let alone reinvest in growth. Above 25% is comfortable, and above that ceiling usually means there's room to spend more on acquisition, not less.
FAQ
Is contribution margin the same as gross margin? No. Gross margin only subtracts COGS. Contribution margin subtracts every cost that scales with the order, COGS, shipping, gateway fees, and ad spend, which is why it's the number that actually tells you if a sale was worth acquiring.
Should RTO be included in contribution margin? Yes, if you want the real number. A margin calculated only on delivered orders overstates profitability, since RTO orders still cost shipping and ad spend with zero revenue.
What counts as a healthy contribution margin? 10 to 20% is typical for fashion and lifestyle D2C. Below that, scaling ad spend usually scales revenue without scaling profit.
How is max affordable CAC calculated from this? Max affordable CAC is your contribution margin before ad spend is subtracted, the ceiling on what you can spend to acquire an order and still break even on it.
Does a positive contribution margin mean the brand is profitable overall? Not on its own. Contribution margin covers variable costs per order. The business still needs enough total contribution margin across all orders to cover fixed costs, salaries, rent, tools, before anything becomes real profit.