Ecommerce

Unit Economics Calculator

Calculate contribution margin per order, profit after customer acquisition cost, and LTV:CAC ratio to evaluate the fundamental profitability of your ecommerce business.

Enter revenue per order to see the result.

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Contribution Margin Formula

Contribution margin measures per-order profitability after all direct variable costs. Combined with CAC and LTV, it tells you whether your business model is fundamentally sound.

CM = Revenue − (COGS + Shipping + Payment Fees)

LTV:CAC = Customer Lifetime Value ÷ CAC

Example: $80 − ($30 + $8 + $2.50) = $39.50 CM · $200 LTV ÷ $15 CAC = 13.3× ratio

Building a Profitable Unit Foundation

The contribution margin per order is the bedrock of ecommerce profitability. Every fixed cost — warehouse rent, salaries, software subscriptions, and marketing overhead — must ultimately be covered by the contribution margin generated from individual orders. If the per-order margin is thin or negative, no amount of volume will make the business profitable.

The LTV:CAC ratio extends this analysis over the customer lifecycle. A customer who places multiple repeat orders generates far more contribution margin over time than their first purchase alone. Businesses with high repeat purchase rates can afford to acquire customers at higher cost because the lifetime value justifies the investment.

Review your unit economics every quarter. As supplier costs, shipping rates, and payment fees change, your contribution margin can erode without you noticing. Small improvements — a dollar saved on shipping or a slightly higher average order value — compound meaningfully across thousands of orders.

Frequently asked questions

What are unit economics?
Unit economics refers to the revenue and cost breakdown at the level of a single unit of business, typically one order or one customer. The key question unit economics answers is whether the business makes money on each individual transaction once all direct variable costs are accounted for. Positive contribution margin per order is the foundation of a sustainable ecommerce business.
What is contribution margin and how is it calculated?
Contribution margin is revenue minus all variable costs directly tied to fulfilling that order. Variable costs include the cost of goods sold, shipping, payment processing fees, and any other per-order expenses. For example, an order with $80 in revenue, $30 COGS, $8 shipping, and $2.50 payment fees has a contribution margin of $39.50. This is the amount left to cover fixed costs and generate profit.
What is a good LTV:CAC ratio for ecommerce?
A LTV:CAC ratio of 3:1 or higher is generally considered healthy, meaning you earn three dollars of lifetime value for every dollar spent acquiring a customer. A ratio below 1:1 means acquisition costs exceed lifetime value, which is unsustainable. Ratios between 1:1 and 3:1 may be acceptable if the payback period is short enough. High-growth businesses sometimes tolerate lower ratios temporarily while scaling.
How does contribution margin differ from gross margin?
Gross margin typically refers to revenue minus COGS only, expressed as a percentage. Contribution margin goes further by subtracting all variable costs, including shipping and payment fees, which are not always included in gross margin. Contribution margin therefore gives a more accurate picture of per-order profitability than gross margin in ecommerce contexts where fulfilment costs are significant.
Why should I track unit economics separately from overall profitability?
Overall profitability can be distorted by fixed costs, one-time expenses, or investment periods. Unit economics strips these away to reveal the fundamental health of your core business model. If contribution margin per order is negative, scaling the business will make losses worse, not better. Positive and growing unit economics is the clearest signal that growth will be profitable rather than destructive.
What should I do if my contribution margin is negative?
A negative contribution margin means you are losing money on every order before accounting for any fixed costs. To fix this, you can increase prices, reduce product costs through better supplier negotiation or product redesign, lower shipping costs by negotiating carrier rates or shifting to slower fulfilment, or reduce payment processing fees by switching processors. Focus on the largest cost line first for the greatest impact.

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