Calculate contribution margin by product and channel

Direct answer

For this review, define true margin as product revenue minus landed cost, fulfillment, marketplace fees, returns, payment fees, and ad spend.

Why this question comes up

Sellers discover too late that revenue is not profit after ads, shipping, returns, fees, taxes, and apps. This guide turns that concern into a review that can be repeated with a defined period, consistent inputs, and a visible trail back to the records.

Records to gather

• Revenue by SKU and by channel, net of discounts
• Landed unit cost including freight and duty
• Channel-specific fees: marketplace commission, payment processing, fulfilment
• Shipping cost actually incurred versus shipping revenue collected
• Returns and refunds by SKU and channel

Review workflow

1. Work with net revenue. Deduct discounts, promotions, and returns before anything else. Gross revenue overstates every margin built on it.
2. Use landed cost, not supplier price. Freight and duty commonly add 10–30% and belong in the unit cost.
3. Attribute channel costs to their channel. Marketplace commission, payment processing, and fulfilment differ substantially between a marketplace and a direct store. A blended figure makes a loss-making channel look acceptable.
4. Net shipping properly. Shipping revenue collected minus shipping cost incurred is often negative, and it belongs in contribution.
5. Deduct returns at full cost. A returned unit costs the outbound shipping, the return shipping, the handling, and often the unit itself.
6. Stop before fixed overhead. Contribution margin is revenue less variable cost. Allocating rent and salaries turns it into something else.

What a useful answer should include

• Contribution margin per SKU and per channel, in currency and percent
• Net revenue used, with discounts and returns already deducted
• Landed cost per unit with components visible
• Channel fees attributed to their own channel
• Net shipping position shown explicitly
• A clear line marking what is excluded as fixed cost

Common failure modes

• Blending channels. A profitable direct store can mask a marketplace channel losing money on every order.
• Using supplier price as cost. It flatters every margin in the analysis.
• Ignoring the returns cost stack. The refund is the smallest part; shipping both ways plus handling is usually larger.
• Allocating fixed overhead into contribution. It stops being contribution margin and can no longer answer the incremental question.

Community context

The linked community posts show why people search for this topic and which parts create confusion in practice. They are anecdotal. Use the reference sources and your organization’s policies for accounting treatment, tax, compliance, and final decisions.