Contribution Margin per SKU Calculator
Not every SKU is worth the shelf space. This works out what a single product actually contributes to profit once COGS, shipping, and payment fees are subtracted — the number that decides whether it's worth reordering at all.
What your result means
The calculator shows how much each unit of a product contributes toward your fixed costs and profit once its variable costs are paid, in dollars and as a percentage of its price.
Low or negative contribution means the product barely pays for itself, however well it sells. Those SKUs need a price rise, cheaper costs, or a decision about whether to reorder them at all.
How the contribution margin formula works
Contribution margin = Price − COGS − Shipping per unit − Fees per unit Contribution margin ratio = Contribution margin ÷ Price
- Price
- what the customer pays per unit
- COGS
- landed cost of the unit
- Shipping per unit
- outbound shipping you pay per unit
- Fees per unit
- payment, marketplace and other per-unit fees
In general terms, contribution margin is price minus all variable costs per unit. This calculator covers the three biggest for most stores. Put any others, such as packaging, into the fees field.
Worked example
Worked exampleExample numbers
These match the calculator's default inputs.
| Input | Value |
|---|---|
| Selling price | $45 |
| COGS | $18 |
| Shipping per unit | $6 |
| Fees per unit | $2 |
- Contribution margin = $45 − $18 − $6 − $2 = $19 per unit
- Ratio = $19 ÷ $45 = 42.2%
For comparison, gross margin on the same product is ($45 − $18) ÷ $45 = 60%. Shipping and fees take another 18 points.
How to improve contribution margin
- Raise prices on your weakest SKUs first. Small rises on low-margin products often have more effect than cutting costs.
- Cut landed cost by negotiating with suppliers or ordering larger quantities where the volume discount outweighs the extra holding cost.
- Reduce shipping per unit with lighter packaging, better carrier rates or a free shipping threshold that raises units per order.
- Watch discounts. A discount comes straight out of contribution. The discount code profit calculator shows how much.
The guide to cost per unit and contribution margin shows how to build landed cost and compare SKUs in a table.
Common mistakes
- Using supplier price instead of landed cost. Freight, duties and packaging belong in COGS.
- Using the shipping cost of a whole order for one unit. If customers usually buy two or three items per order, divide the order's shipping cost by the typical number of units.
- Forgetting percentage fees. Payment and marketplace fees are usually a percentage of the price. Work out the dollar amount at this product's price.
- Ignoring discounts. If a product usually sells with a discount code, use the average price actually paid, not the list price.
- Judging a product on contribution alone. A low-contribution item that's often bought alongside a high-contribution one may still be worth keeping. Check what else is in its orders.
FAQ
What's the difference between contribution margin and gross margin?
Gross margin only subtracts the cost of the product. Contribution margin also subtracts the other costs that come with every unit sold, such as shipping and payment fees, so it's closer to what each sale really leaves you.
What should I put in fees per unit?
Every per-unit cost that isn't product cost or shipping: payment processing, marketplace commissions, packaging, and pick-and-pack fees from a 3PL. If you track ad cost per unit sold, you can add that too.
What's a good contribution margin?
It needs to be high enough to cover your fixed costs and leave a profit at your sales volume. Compare SKUs against each other: the lowest contributors are the first candidates for a price rise, a cheaper supplier or discontinuing.