Contribution Margin Report

The Contribution Margin report provides a comprehensive financial waterfall analysis, showing how your gross sales flow through various costs and adjustments to arrive at your final contribution margin. This report is essential for understanding true profitability after accounting for all variable costs including advertising spend.

Overview​

This report presents a complete financial breakdown that follows the path from gross sales to contribution margin, displaying each component that affects your bottom line. It helps identify which costs are consuming the largest portion of your revenue and provides insights for optimizing profitability across different time periods.

The report supports analysis across all customer types (new, returning, or all customers) and adapts its display based on your store's revenue definition settings and cost configurations.

Report Logic Summary​

The report processes financial data by:

1. Revenue Calculation: Starts with gross sales and applies discounts, taxes, shipping, and refunds based on your store's revenue definition
2. Cost Allocation: Calculates COGS, monthly fixed costs, per-order costs, and variable percentage costs
3. Ad Spend Integration: Includes advertising costs if configured to be part of contribution margin calculations
4. Time Period Aggregation: Groups data by selected time periods (daily, weekly, monthly, etc.)
5. Waterfall Display: Shows the step-by-step reduction from gross sales to final contribution margin
6. Dynamic Column Hiding: Automatically hides cost categories that aren't configured for your store

Important: Refunds shown are refunds processed on each specific day, not refunds attributed to sales from that day.

Column Definitions​

Revenue Flow​

Cost Breakdown​

Operational Costs​

Marketing Costs​

Final Profitability​

Report Variations​

The report supports multiple time period groupings:

Monthly (Default)​

• Purpose: Standard monthly financial analysis
• Best for: Regular business reviews and trend analysis
• Calculations: Aggregates all financial data by calendar month

Daily​

• Purpose: Day-by-day financial performance
• Best for: Identifying daily trends and anomalies
• Calculations: Shows each individual day's performance

Weekly​

• Purpose: Week-over-week analysis
• Best for: Weekly business reviews and short-term trend identification
• Calculations: Aggregates data by calendar weeks

Bi-Weekly​

• Purpose: Two-week period analysis
• Best for: Payroll period alignment or mid-month reviews
• Calculations: Groups data into 14-day periods

Quarterly​

• Purpose: Quarterly financial analysis
• Best for: Seasonal trend analysis and quarterly business reviews
• Calculations: Aggregates data by calendar quarters

Yearly​

• Purpose: Annual financial performance
• Best for: Year-over-year comparisons and annual planning
• Calculations: Shows annual totals and trends

Cost Configuration Impact​

Monthly Costs​

• Prorated Calculation: Monthly costs are prorated based on the percentage of month covered by each time period
• Custom Labels: Uses your configured cost category names (e.g., "Rent & Utilities", "Staff Costs")
• Time Period Adjustment: Automatically adjusts for partial months in selected date ranges

Per-Order Costs​

• Order-Based: Multiplied by the actual number of orders in each period
• Examples: Packaging costs, fulfillment fees, payment processing fees
• Custom Labels: Displays your configured cost category names

Variable Percentage Costs​

• Revenue-Based: Applied as a percentage of total revenue
• Examples: Payment processing percentages, affiliate commissions
• Custom Labels: Uses your configured cost category descriptions

Ad Spend Integration​

• Conditional Display: Only shown if "Include Customer Acquisition Costs" is enabled in settings
• Customer Type Filtering: Respects customer type filters (All, New, Returning)
• Platform Aggregation: Sums spend across all advertising platforms

Revenue Definition Impact​

The report adapts based on your store's revenue definition settings:

Shipping Handling​

• Included in Revenue: Shipping appears in initial revenue calculation
• Excluded from Revenue: Shipping shows as separate addition after revenue
• Settings Override: Store contribution margin settings can override revenue definition for shipping

Tax Handling​

• Included in Revenue: Taxes included in gross sales calculation
• Excluded from Revenue: Taxes shown as separate line item
• Geographic Considerations: Adapts to different tax reporting requirements

Refund Timing​

• Position in Waterfall: Refunds appear in different positions based on revenue definition
• Timing Note: Always shows refunds processed during the period, not attributed to period sales
• Percentage Calculations: Refund percentages calculated against appropriate base amounts

Report Features​

• Automatic Column Hiding: Unused cost categories are automatically hidden
• Dynamic Labels: Column names adapt based on your cost configuration
• Customer Type Filtering: Filter by All Customers, New Customers, or Returning Customers
• Totals Row: First row shows aggregated totals across all time periods
• Comparison Support: Compare against previous periods with percentage differences
• Goal Integration: Compare actual performance against defined contribution margin goals
• Currency Formatting: All values display in your store's configured currency

Interpreting Results​

Healthy Financial Indicators​

• Contribution Margin > 20%: Generally indicates healthy profitability
• Stable COGS %: Consistent product margins suggest good supplier relationships
• Controlled Ad Spend %: Marketing efficiency maintained within targets
• Low Refund %: Product quality and customer satisfaction indicators

Warning Signs​

• Declining Contribution Margin %: May indicate rising costs or pricing pressure
• High Refund Rates: Could suggest product quality or fulfillment issues
• Increasing Cost %: Operational efficiency may need attention
• Variable Product Margins: Inconsistent profitability across periods

Optimization Opportunities​

• High COGS %: Negotiate better supplier terms or optimize product mix
• Excessive Fixed Costs: Review operational efficiency and cost allocation
• Poor Ad Spend ROI: Optimize marketing campaigns or attribution windows
• Seasonal Patterns: Plan inventory and marketing spend around profitable periods

Technical Details​

Calculation Methodology​

• Monthly Cost Proration: Uses percentage of month calculation for accurate period allocation
• Order Cost Attribution: Multiplies per-order costs by actual order volume
• Variable Cost Application: Applies percentage costs to gross revenue before other deductions
• Ad Spend Timing: Matches ad spend timing to revenue timing for accurate ROI calculation

Data Processing​

• Customer Type Segmentation: Separates new and returning customer data throughout calculations
• Revenue Definition Compliance: Respects store-specific revenue recognition rules
• Cost Category Flexibility: Adapts to any number of custom cost categories
• Period Boundary Handling: Correctly handles partial periods and date range boundaries

Performance Considerations​

• Efficient Aggregation: Optimized for large date ranges and high transaction volumes
• Memory Management: Uses streaming calculations to handle extensive historical data
• Column Optimization: Dynamically removes unused columns to improve display performance

FAQ​

Why do my refund amounts seem disconnected from my sales?​

The Contribution Margin report shows refunds processed during each time period, not refunds attributed to sales from that period. This timing difference means:

• January Sales: A customer buys in January but returns in February
• January Report: Shows the sale but no refund
• February Report: Shows the refund but no corresponding sale

This approach provides accurate cash flow analysis but can create apparent mismatches. For attribution-based refund analysis, use customer lifetime value reports.

How are monthly costs calculated for partial months?​

Monthly costs use a "percentage of month" calculation:

• Full Month: 100% of monthly costs applied
• Half Month: 50% of monthly costs applied
• Daily Breakdown: Each day receives 1/30th of monthly costs (approximately)
• Quarterly View: Each quarter receives 3 months of costs

This ensures accurate cost allocation regardless of your selected time period or date range.

Why doesn't my Contribution Margin match my accounting software?​

Several factors can cause differences:

Timing Differences:

• Accounting software may use accrual basis while this report uses cash basis
• Revenue recognition timing may differ between systems
• Refund attribution vs. processing timing creates variances

Cost Allocation Methods:

• Different depreciation or amortization schedules
• Varying treatment of shipping and tax components
• Alternative fixed cost allocation methodologies

Revenue Definition Variations:

• Different treatment of discounts, shipping, taxes
• Varying refund recognition policies
• Currency conversion timing differences

Recommendation: Use this report for operational insights and your accounting software for official financial reporting.

How should I interpret negative contribution margins?​

Negative contribution margins indicate costs exceed revenue and require immediate attention:

Temporary Negatives (Acceptable):

• New product launches with high initial marketing costs
• Seasonal businesses during off-peak periods
• Strategic loss-leader campaigns

Concerning Negatives (Action Required):

• Sustained periods of unprofitability
• Increasing cost percentages without revenue growth
• Poor product margins combined with high operational costs

Action Steps:

1. Identify the largest cost contributors
2. Evaluate pricing strategy and product mix
3. Optimize marketing spend and operational efficiency
4. Consider discontinuing unprofitable products or channels

What customer type should I analyze?​

Different customer types serve different analytical purposes:

All Customers (Default):

• Overall business performance and profitability
• Board reporting and investor communications
• General trend analysis and forecasting

New Customers Only:

• Customer acquisition cost analysis
• Marketing campaign effectiveness
• Growth strategy evaluation

Returning Customers Only:

• Customer retention profitability
• Lifetime value optimization
• Loyalty program effectiveness

Recommendation: Start with "All Customers" for general analysis, then segment by customer type to identify specific optimization opportunities.

How do I optimize my contribution margin?​

Focus on the largest impact areas first:

Revenue Optimization (Highest Impact):

• Increase average order values through bundles or upsells
• Optimize pricing strategy based on demand elasticity
• Improve conversion rates to maximize revenue per visitor

Cost Reduction (Medium Impact):

• Negotiate better COGS with suppliers or optimize product mix
• Streamline operational processes to reduce per-order costs
• Evaluate and optimize fixed cost structures

Marketing Efficiency (Variable Impact):

• Focus ad spend on highest-converting channels and audiences
• Improve attribution tracking for better budget allocation
• Balance acquisition costs with lifetime value projections

Systematic Approach:

1. Identify your biggest cost percentage contributors
2. Set targets for each major cost category
3. Monitor weekly/monthly progress against targets
4. Adjust strategies based on contribution margin trends