On a marketplace, the difference between the selling price and the purchase price is only the starting point. Between the two sit a series of variable costs that differ by product, market and fulfilment model – and together they decide whether a sale makes money.

What contribution margin includes

Contribution margin is what is left of the net selling price after all variable costs of making and fulfilling that sale. For a marketplace seller the typical cost lines are:

  • Cost of goods, including inbound freight and duties
  • Marketplace fees, such as referral or commission fees
  • Fulfilment and storage costs – whether the marketplace or your own warehouse handles orders
  • Payment, currency and other transaction costs where they apply
  • Returns, refunds and damaged or unsellable stock
  • Advertising and promotions attributable to the product

VAT should be removed from the selling price before the calculation, and fixed costs – salaries, software, overheads – are deliberately left out. They matter for the business, but they do not change with each additional unit sold.

Why advertising belongs in the calculation

Advertising is often treated as a marketing budget rather than a product cost. On marketplaces, where a large share of sales can depend on sponsored placements, that hides the real economics. Including advertising per product – for example through TACoS, total advertising cost of sales – shows which products still contribute after the cost of selling them.

How it changes decisions

  • Pricing: a price that looks competitive may leave no contribution once fees and advertising are included.
  • Assortment: products with high revenue but negative contribution become visible and can be repriced, redesigned or retired.
  • Advertising: budgets can be set per product against the contribution it can afford, instead of a single ACOS target for everything.
  • Fulfilment and markets: the same product can be profitable in one market or fulfilment model and not in another.

Start with your twenty largest products. Rebuild their contribution per market with all variable costs, including advertising. The ranking often looks very different from a ranking by revenue.