E-commerce Contribution per Order

How to use it

Enter the average order, what the goods cost, shipping both ways, payment fees, packing, returns and what you pay in ads per order. The result is what an average order leaves after all of it, the most you could pay in ads before an order loses money, and the return on ad spend that implies.

Where the number comes from

• Everything is an expected value per order. With a 12% return rate, each order carries 12% of a refund, 12% of a return’s handling cost and so on, so the figures describe the average order, not any single one.
• Refunds are order value times the return rate. Shipping charged is assumed not refunded; outbound shipping paid on a returned order is a sunk cost.
• Product cost on kept orders is order value times the product cost share. On returned orders the resaleable share goes back into stock and the rest is written off, which is counted under returns along with the cost per return.
• Payment fees are the percentage on order value plus shipping, plus the fixed fee. Most processors keep their fees when a payment is refunded, so fees are charged on every order including returned ones.
• Contribution before ads is order value less refunds, product cost, net shipping, fees, fulfilment and returns. That figure is the break-even ad cost per order, and order value divided by it is the break-even return on ad spend.
• Contribution after ads subtracts the ad cost per order. The margin divides it by net revenue: order value after refunds plus shipping charged.

What goes wrong

The part most calculators leave out.

• A blended ad cost per order mixes new customers, who cost the full ad price, with repeat and organic orders, which cost little or nothing. The blend can look profitable while every new customer is acquired at a loss — or the reverse.
• A loss on a first order can be a deliberate choice if customers come back, but this calculator looks at one order only. It does not model repeat purchase, and a loss here is only recovered if later orders actually happen.
• Fee refund rules vary by processor and plan. Some return the percentage fee on a refund and keep the fixed part, some keep both; if yours refunds fees, returns cost a little less than shown.
• The return rate is applied evenly. Returns often concentrate in particular products, sizes or channels, so the average order can be fine while the orders that come back from one ad campaign are not.
• Product cost as a single share of order value ignores mix. Discounted orders and bundles usually carry a higher cost share than the average.

Questions

What is contribution per order?

What an order leaves after every cost that comes with it — goods, shipping, fees, packing, returns and the ads that brought it in — before fixed costs like rent and salaries. It is the amount each order adds towards paying for the business.

What ROAS do I need to break even?

Order value divided by your contribution before ads. If an 85 order contributes 34 before advertising, you can spend up to 34 in ads on it, which is a ROAS of 2.5×. Below that, every ad-won order loses money.

Is a 3× ROAS good?

It depends entirely on your margins. A business with cheap goods and few returns may break even at 2×; one with high product cost, free shipping and heavy returns can need 4× or more. The break-even figure here is the one to compare against.

Why are payment fees charged on returned orders?

Most card processors keep their fee when you refund a payment. If yours refunds fees, set the return figures accordingly — the difference is usually small.

Does anything I type get sent anywhere?

No. The whole calculation runs in your browser. Nothing is sent to us or logged, and there is no account to create. Your browser keeps the figures with this tab’s history so that Back and Reload bring them back, and Reset clears them.