Phase 1 · Core Sovereign Layer
E-Commerce Unit Economics Calculator
Revenue is vanity; contribution margin is survival. Strip an order down to its true profit after product, returns, fees, shipping and ad spend — and see your break-even ROAS.
How do you calculate contribution margin and break-even ROAS?
Strip one order down to what survives. Returns cut the revenue you keep and the product cost, but shipping is paid twice on a return. Contribution = kept revenue − COGS − fees − shipping − ad cost. Your break-even ROAS is AOV ÷ contribution before ad spend — the ad efficiency at which the order neither makes nor loses money.
- A return costs shipping both ways, so shipping scales as per-order shipping × (1 + return rate) while revenue, COGS and fees scale by (1 − return rate).
- Worked example (defaults on this page): a $65 AOV with 35% COGS, 5% fees, $8 shipping and a 12% return rate leaves $25.36 before ads — so break-even ROAS is 2.56.
- That $25.36 is also your maximum viable CAC. Spend $22 to acquire the order and only $3.36 survives — a 5.2% contribution margin with nothing left for overhead.
- This is how a store grows revenue and runs out of cash simultaneously: every order above your break-even ROAS is a loss you are paying to scale.
Under the hood
The math, fully exposed
We average one order including the cost of returns, then subtract everything variable:
Kept revenue = AOV × (1 − return rate)
COGS = AOV × COGS% × (1 − return rate)
Fees = AOV × fee% × (1 − return rate)
Shipping = per-order shipping × (1 + return rate) (out + back)
Contribution = kept revenue − COGS − fees − shipping − ad cost
Break-even ROAS = AOV ÷ (contribution before ad spend)
- Ad spend is the swing factor: everything before ads is your "margin to spend." If your CAC exceeds it, you're buying revenue at a loss no matter how fast you grow.
- Returns are taxed twice: a returned order refunds revenue and adds reverse shipping, while the acquisition cost is already sunk. High-return categories must price for it.
- Positive per order ≠ safe: contribution margin keeps you solvent long-term, but inventory and ad timing decide whether you have cash to reorder. Watch both.
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Answers
Frequently asked questions
What is contribution margin in e-commerce?
Contribution margin is what a single order leaves behind after every variable cost — product (COGS), payment and platform fees, shipping (out and back on returns), and the ad spend it took to win the customer. It's the cash that actually contributes to covering your fixed costs and profit. A healthy DTC brand needs positive contribution after ads on the first order, or it's buying revenue at a loss.
What are ROAS and break-even ROAS?
ROAS (return on ad spend) is revenue ÷ ad spend. Your break-even ROAS is the level where the order exactly pays for itself: AOV ÷ contribution-before-ads. If your actual ROAS is above break-even, you profit per order; below it, every sale loses money. It's the single most important number to watch against your ad platforms' reported ROAS.
How do returns wreck DTC profitability?
Returns hit you twice: you refund the revenue and eat reverse shipping and handling, while the ad spend that won the order is already gone. A 12% return rate can quietly turn a "profitable" product into a break-even one. Apparel and footwear brands with 20–40% returns live or die on this number.
Why do profitable-looking DTC brands still run out of cash?
Because of the cash conversion cycle. You pay for inventory and ads now, but collect revenue over time — and you must reorder stock before the last batch is fully sold. Even a per-order-profitable brand can starve for cash if it's growing fast and every dollar is tied up in in-transit inventory. Margin keeps you alive; cash timing decides when.