Contribution Margin: Profit After All Variable Costs

Total contribution margin (CM3) after deducting all variable costs including COGS, fulfillment, transaction fees, and marketing/ad spend from net revenue.

Formula

Contribution Margin = CM2 − Marketing Cost − Ad Spend − Agency Fees

Formula Components

Metric	Definition
CM2	Margin after deducting COGS, fulfillment, and transaction costs from net revenue
Marketing Cost	User-defined marketing costs allocated per order
Ad Spend	Total advertising spend across all connected platforms
Agency Fees	User-defined agency fees allocated per order

Metadata
Type	Currency
Data Source	Shopify, Upstack Costs
Aggregation	Sum

Example

Your store generated $125,000 in net revenue last month. After all variable costs:

Line Item	Amount	Running Margin
Net Revenue	$125,000	$125,000
− COGS	$37,500	$87,500 (CM1)
− Fulfillment + Transaction	$12,500	$75,000 (CM2)
− Marketing Cost	$8,000	$67,000
− Ad Spend	$15,000	$52,000
− Agency Fees	$2,000	$50,000 (CM3)

Your Contribution Margin is $50,000, representing 40% of net revenue.

How It Works

Contribution Margin (CM3) represents profit remaining after subtracting all variable costs from net revenue. It’s calculated as a layered waterfall: Net Revenue → CM1 (minus COGS) → CM2 (minus fulfillment and transaction costs) → CM3 (minus marketing, ad spend, and agency fees). This metric shows true marketing profitability before fixed operating expenses.

Scenario	Action
Measuring marketing ROI	Compare contribution margin to total marketing investment
Setting ad budgets	Ensure campaigns maintain positive CM3
Pricing decisions	Verify products cover all variable costs
Profitability analysis	Identify which channels generate real profit

Scenario

Action

Measuring marketing ROI

Compare contribution margin to total marketing investment

Setting ad budgets

Ensure campaigns maintain positive CM3

Pricing decisions

Verify products cover all variable costs

Profitability analysis

Identify which channels generate real profit

Metric	Relationship
Gross Profit	Net Revenue minus COGS (CM1)
Marketing Cost	User-defined marketing cost component
Total Cost	Sum of all cost components
Net Revenue	Starting point before deductions

Metric

Relationship

Gross Profit

Net Revenue minus COGS (CM1)

Marketing Cost

User-defined marketing cost component

Total Cost

Sum of all cost components

Net Revenue

Starting point before deductions

METRICS

Contribution Margin: Profit After All Variable Costs

Formula

Formula Components

Example

How It Works

When to Use

​Formula

​Formula Components

​Example

​How It Works

​When to Use

​Related Metrics

Formula

Formula Components

Example

How It Works

When to Use

Related Metrics