Formula
Contribution = retail − landed cost − fees − returns allowance
What it means
Contribution margin is the pool that has to pay for customer acquisition and leave a profit. Expressed as a share of the retail price, it tells you how much room a product has for ads.
Worked example
For a supplier price of $8.00 sold at $20.00 (2.5x markup), with 2.9% + $0.30 payment fees and a 3% returns allowance: $10.52 per order, 52.6% of the retail price.
Try your own numbers in the Dropshipping Profit Calculator