How do you calculate contribution margin for a DTC brand?
Contribution margin after marketing is the percentage of net sales left after product cost, fulfillment and shipping, and marketing. It's calculated as net sales minus COGS, fulfillment costs, and marketing spend, divided by net sales. It shows whether growth is paying for itself before overhead like salaries and rent.
Formula
(Net sales − COGS − fulfillment and shipping costs − marketing spend) ÷ net sales
Example
A hypothetical pet products brand has $1,000,000 of net sales, $450,000 of COGS, $150,000 of pick/pack, shipping, and merchant fees, and $280,000 of marketing spend. Contribution = $1,000,000 − $450,000 − $150,000 − $280,000 = $120,000. Contribution margin = $120,000 ÷ $1,000,000 = 0.12, or 12%.
How to read it
Higher is better. This is the number that answers whether more sales make the business healthier or just bigger. Marketing spend often runs ahead of the sales it produces, especially before a launch or holiday season, so a single month can look worse than the quarter. Make sure fulfillment includes merchant and payment processing fees, and that marketing includes all acquisition spend, not just paid social.
What moves it
- Paid media efficiency and total marketing budget
- Shipping rates, 3PL pick/pack fees, and packaging costs
- Merchant and payment processing fees
- Gross margin changes from product cost or discounting
- Average order value, which spreads per-order costs
What to do when it's flagged
- Separate the decline into gross margin, fulfillment, and marketing pieces
- Cut marketing in channels or campaigns with the weakest return
- Renegotiate 3PL or carrier rates and review free shipping policies
- Raise AOV through bundles or price increases before scaling spend again
How Inflection tracks it
Inflection's KPI Monitor flags contribution margin after marketing as Watch below 15% and Critical below 5% by default; each client's thresholds are adjusted to their business.
Net sales, COGS, and marketing spend come from the QuickBooks P&L; fulfillment and shipping costs are entered manually until that input is connected.
Updated 2026-10-11. Example figures are hypothetical.