Commerce operations
Contribution margin
Contribution margin is revenue minus all variable costs of fulfilling an order — goods, processing, shipping, packaging and returns — leaving what covers fixed costs.
It is the correct denominator for acquisition decisions. A brand comparing customer acquisition cost against revenue rather than contribution margin will systematically overspend, and the error grows with the discount rate.
The commonly omitted lines are returns and payment processing. Both are genuinely variable, both scale with volume, and both are frequently accounted for centrally where they disappear from per-order economics.
Returns are the one that does the most damage when omitted, because the cost is not the refunded revenue — that nets out — but everything around it: outbound shipping already spent, return shipping, inspection, repackaging and the units that come back unsellable. On an apparel line running 30% returns, an order economics model built on gross sales can show a healthy margin on a category that loses money on every cohort.