Glossary/Contribution margin
What is contribution margin?
Contribution margin is revenue minus the variable costs of selling one more unit: COGS, marketplace commission and transaction fees, attributed advertising cost, outbound fulfillment, seller-funded vouchers, and a returns reserve. It is the amount each sale contributes toward fixed costs and profit. Unlike gross margin, which stops at COGS, contribution margin includes the platform and advertising costs that dominate marketplace economics — which is why a SKU can carry 60% gross margin and negative contribution, and why contribution is the only margin figure that answers the questions sellers actually ask: which products to promote, which to discount, and which to stop advertising.
01/Formula
Formula
Contribution margin (฿) = price − COGS − marketplace fees − ad cost per unit
− fulfillment − vouchers − returns reserve
Contribution rate (%) = contribution margin / price
Break-even units = fixed costs / contribution margin per unitExample
A SKU sells for ฿499. Per-unit: ฿180 COGS, ฿50 marketplace fees, ฿70 attributed ads, ฿40 fulfillment, ฿25 voucher, ฿9 returns reserve. Contribution margin = 499 − 374 = ฿125, a 25% contribution rate. Gross margin on the same SKU = (499 − 180) / 499 = 64%. The 39-point gap between the two is the entire marketplace business model.
02/In detail
How is contribution margin different from gross margin?
Gross margin subtracts only COGS. Contribution margin subtracts every cost that varies with the sale. In a wholesale business the two are close, because the costs between the warehouse and the customer are small and stable. On a marketplace they diverge enormously: commission, payment fees, seller-funded promotions, courier subsidies, and advertising together routinely consume 30 to 45 points of price. A seller reasoning in gross margin is reasoning about a business they are not in. The practical tell is a shop that grows revenue at a healthy gross margin and cannot explain where the cash went.
Should advertising be inside contribution margin?
For decisions about a product, yes — with a caveat about which spend. Attributed ad cost belongs in contribution because it is a cost of acquiring that sale, and excluding it produces the familiar illusion of a profitable catalogue attached to an unprofitable shop. The caveat is that a brand-building or category-discovery campaign is closer to a fixed investment than a per-unit cost, and loading it entirely onto the units it happened to touch will mis-rank products. A common resolution is to carry two figures: contribution after attributed direct-response spend, used for product decisions, and contribution before ads, used to derive break-even ROAS.
What do you do with a negative contribution SKU?
Diagnose before deleting, because the four causes have different fixes. If the ad cost is the culprit, stop advertising it — a SKU with negative contribution after ads and positive contribution before them is a perfectly good organic product being ruined by a campaign. If the voucher is the culprit, stop enrolling it in seller-funded promotions. If the fee band is the culprit, check whether the listing is in the right category. Only if it is negative before ads, vouchers, and any fixable fee is the product itself the problem — and even then it may be earning its place as a traffic driver or a bundle component, which contribution per unit does not capture on its own.
03/Why it matters
The trap, in one paragraph.
GMV and platform-reported revenue can grow for quarters while contribution shrinks, and that combination is the classic signature of a shop scaling itself out of business. Contribution margin per SKU is the cleanest basis for deciding what to promote, what to retire, and which discounts pay for themselves, because it is the only figure denominated in money the business keeps.
Common mistake
Ranking products by contribution rate instead of contribution baht. A 45% rate on a ฿99 accessory contributes ฿45; a 20% rate on a ฿1,500 appliance contributes ฿300. Rate answers “how efficient is this sale?”. Baht answers “how much did this product pay us?”. Inventory, ad budget, and shelf attention should follow the second one.
04/In DataGlass
How Contribution margin is used in DataGlass.
DataGlass computes contribution margin per SKU and per variant from reconstructed order economics — COGS, platform fees, vouchers, fulfillment, and attributed ad cost — and ranks products, campaigns, and promotions against it. The daily recommendations are ordered by projected contribution effect rather than by revenue.
05/Sources
- [1] Shopee Thailand — seller commission and fee schedule
Commission, transaction fees, and Shop Voucher mechanics — the variable costs that separate gross margin from contribution margin.
- [2] Shopee Thailand — Shopee Coins and Cashback programmes
Documentation of how cashback and coin issuance costs are split between platform and seller — the contribution line item most often under-attributed.