Contribution margin
The contribution margin (CM) is the difference between a product's selling price and the variable costs - typically the purchase price (cost price). It shows how much each product sold contributes to covering the company's fixed costs and making a profit.
Calculation
Contribution margin = Sales price (ex. VAT) - Cost price
Example: A product is sold for 200 DKK ex. VAT and costs 80 kr. to purchase. The contribution margin is 120 DKK.
Coverage ratio
The contribution margin shows the contribution margin as a percentage of the sales price. In the example above: 120/200 = 60%. The higher the contribution margin, the more you earn per sale.
In Shoporama
To calculate contribution margins, you need to fill in the cost price of your products under product editing. Once the cost price is filled in, you can use the ABC analysis to classify products based on contribution margin - and find the products that actually make money, not just make the most sales.
How to Use Shoporama
Guides that demonstrate the concept in practice
Cost of Goods Sold & Profitability: Understand your online store's break-even point
Cost of Sales & Profit gives you an overview of your profit margin per month. Learn how to use the numbers to...
Cost Prices and Inventory Value
Fill in any missing cost prices to get a more accurate inventory value and profit margin. Guide to the Cost Prices page.
ABC analysis: Find out which products make you money
Learn how to use ABC analysis to prioritize your assortment, optimize your inventory and focus on the products that...
We know online marketing in Shoporama
We've been working with online marketing ourselves for decades. As the only shop system in the country, we have spoken multiple times at conferences such as Marketingcamp, SEOday, Shopcamp, Digital Marketing, E-commerce Manager, Ecommerce Day, Web Analytics Wednesday and many more.