Contribution margin per marketplace = net sales after returns, minus product cost of units kept, marketplace commission and fees, logistics, return losses, ads and packaging. Pull figures from each marketplace's settlement report, allocate unsettled costs by order or unit, and divide by net sales. Calculate it separately for every marketplace and every month, then compare.
What contribution margin means at marketplace level
Contribution margin is what is left from sales after all variable costs that exist only because you sold that order. It does not include fixed costs such as salaries, rent or software. Calculated per marketplace, it answers a simple question: if we sell one more order here, how much do we keep?
The working formula:
Contribution margin = Net sales − product cost of units kept − marketplace fees − logistics − return losses − ads and promotions − packaging and other variable costs
Divide by net sales to get a percentage, and by units kept to get a per-unit figure. A channel with high gross sales can still have a thin or negative contribution margin once returns and fees are counted.
Collect the inputs and know where each comes from
Most errors come from using the wrong source. Use the marketplace's own settlement and order reports for revenue and fees, and your internal records for the rest.
| Input | Where to find it |
|---|---|
| Gross sales, cancellations, returns | Order and returns reports from the seller panel |
| Commission, fixed fees, shipping or collection fees | Settlement report, checked against your seller agreement and current rate card |
| Taxes collected at source and GST treatment | Settlement report; confirm treatment with your tax adviser |
| Product cost (landed) | Your inventory or purchase records |
| Ads, promotions, co-funded discounts | Marketplace ad invoices and promotion statements |
| Packaging, warehouse handling | Your own cost sheets, converted to a per-order figure |
Do not copy fee percentages from blogs or old emails. Rate cards change, so confirm the latest terms in your agreement or seller panel.
Step-by-step calculation
- Fix the period and the cut-off. Use orders delivered in a month, or settlements received in a month, but pick one and stay consistent.
- Compute net sales. Take invoice value excluding GST, then remove cancellations and returns.
- Deduct product cost of units kept. Returned units that go back to saleable stock should not carry cost.
- Deduct marketplace charges. Take commission, fixed fees, logistics fees and reverse shipping from the settlement, not from an assumed rate.
- Add return losses. Include damaged, missing or non-resaleable returns, net of any claims you recover.
- Deduct ads and promotions. Include only those funded by you.
- Deduct packaging and handling. Use a per-order average.
- Divide. Show the result as ₹ in total, ₹ per unit and % of net sales.
Allocate costs that do not appear in the settlement
Some costs never show up as a line in the settlement. Ad spend may be billed separately, and packaging sits in your books. Allocate them in a way you can defend:
- Per order or per unit for packaging and pick-pack costs.
- By marketplace sales share only when a cost genuinely cannot be traced, such as a shared warehouse team.
- By SKU where return rates differ widely, since a high-return category can distort the channel average.
Write down the allocation rule and keep it constant month to month so trends remain comparable.
Mistakes that distort the number
- Using gross sales instead of net sales after returns.
- Applying one assumed commission rate to every category and then never checking the settlement.
- Ignoring fee deductions that differ from agreed terms, such as weight-slab or category mismatches.
- Treating returns as zero-cost when units come back damaged or do not come back at all.
- Mixing GST-inclusive revenue with GST-exclusive costs.
- Comparing marketplaces with different cut-off logic.
Reconcile before you trust the margin
Contribution margin is only as good as the settlement data behind it. If a marketplace has over-deducted fees or short-paid a return claim, your margin looks worse than it should, and the recoverable amount stays hidden. Reconcile orders to settlements first, then calculate margin.
MarketplaceMetrics by Fundle reconciles marketplace sales and settlements, checks commissions and fees against agreed terms, and tracks returns and recovery cases. Myntra Excel reports are reviewed today, and other marketplaces are in scope discussion. Even without a tool, a monthly order-to-settlement check in a spreadsheet will make your channel margins far more reliable.
Worked example
Illustrative example only. All figures are made up to show the method and are not real rates or results.
| Line (one marketplace, one month) | ₹ (illustrative) |
|---|---|
| Gross sales, 1,000 units shipped at ₹1,000 average | 10,00,000 |
| Less returns and cancellations, 150 units | (1,50,000) |
| Net sales (850 units kept) | 8,50,000 |
| Less product cost, 850 × ₹350 | (2,97,500) |
| Less commission and fees per settlement | (1,70,000) |
| Less logistics and reverse shipping | (60,000) |
| Less return write-offs, 20 units × ₹350 | (7,000) |
| Less ads and promotions | (50,000) |
| Less packaging and handling | (25,000) |
| Contribution margin | 2,40,500 |
Contribution margin is about 28.3% of net sales, or roughly ₹283 per unit kept. Repeat the same table for each marketplace and compare the percentages, not just the rupee totals.
Questions and answers
Should I calculate contribution margin on gross or net sales?
Use net sales after cancellations and returns, excluding GST. Gross sales overstate performance, especially in categories with high return rates. Showing the margin as a percentage of net sales also keeps different marketplaces comparable.
Do marketplace ads belong in contribution margin?
Yes, if you fund them. Ads and promotions exist only to drive sales on that channel, so they are variable costs. Include co-funded discounts only for your share, as shown in the marketplace's promotion statements.
How often should I calculate it?
Monthly is a practical rhythm, after settlements for the period are closed. Review it weekly for fast-moving channels or during sale events, but flag it as provisional until returns and settlement adjustments have come through.
Where do I find the correct commission and fee terms?
Check your signed seller agreement, the current rate card and the fee lines in each settlement report. Terms can change by category, price band or weight slab, so confirm the latest version with the marketplace before auditing.