How to Calculate Contribution Margin per SKU

What contribution margin per SKU actually measures

Contribution margin is what a SKU has left after the costs that move with each sale. It is not net profit, because it leaves out fixed overheads such as salaries, rent and software. It is more useful than gross margin for marketplace sellers because it includes the costs that gross margin hides: commission, fixed fees, fulfilment, returns and advertising.

Calculate it per SKU, and ideally per size or variant, because one size can have a far higher return rate than the rest of the style. A listing that looks healthy at the parent level can hide a loss-making variant.

Pull the right data from Amazon and Flipkart

Start with actual transaction data, not the price on the listing. For each marketplace, download these for the same period:

• Order and sales report: units, selling price, discounts and order status by SKU.
• Settlement or payment report: commission, fixed or closing fees, shipping or fulfilment fees, collection fees, refunds, reverse fees and adjustments.
• Returns report: returned units, reason, and whether the item came back sellable, damaged or not at all.
• Ad reports: spend by campaign and, where available, by advertised SKU.
• Your cost sheet: landed product cost, packaging and any inbound freight per unit.

Report names and columns differ by marketplace and change over time, so check the current report guides in your seller panel. For the fee rules that should apply to you, use your seller agreement and the latest rate card, and confirm the current version before you rely on it.

The step-by-step formula

1. Start with net selling price per unit. Use the price after seller-funded discounts, excluding GST. Ask your tax adviser how GST, TCS and TDS should be treated in your management accounts. TCS and TDS mainly affect cash timing and credits, so keep them out of the margin unless your adviser says otherwise.
2. Subtract refunds. Remove the revenue on units that were returned or cancelled after shipping to get net revenue.
3. Subtract product cost for units kept by customers. Add the cost of returned units that cannot be resold.
4. Subtract marketplace fees per SKU: commission, fixed fees, shipping or fulfilment fees, and reverse shipping on returns. Take these from the settlement report, not from an assumed percentage.
5. Subtract your own variable costs: packaging, outbound shipping if you self-ship, and payment or handling charges.
6. Subtract attributable ad spend. Use SKU-level spend where you have it. Otherwise allocate campaign spend by the share of ad-attributed sales.
7. Divide. Contribution divided by units gives per-unit margin. Contribution divided by net revenue gives the percentage.

Treat returns, RTOs and ads carefully

Returns are where most SKU margins go wrong. A returned unit can cost you the forward fee, the reverse fee, packaging, and the product itself if it comes back damaged or does not come back. Whether the commission is refunded on a return depends on the marketplace terms and the return type, so read the settlement lines rather than assuming.

For ads, avoid spreading spend evenly across all SKUs. A hero SKU usually absorbs most of the spend. If your reports cannot attribute spend to a SKU, allocate by ad-attributed revenue and state that assumption in the sheet.

Keep a separate column for adjustments such as weight-slab corrections, penalties and claim credits. These are easy to miss, and they decide whether a thin margin is real or a fee error.

Common mistakes that distort SKU margins

• Using list price or MRP instead of the realised price after discounts.
• Applying a flat fee percentage to every SKU instead of the actual settlement lines.
• Counting only delivered orders and ignoring the cost of returns that arrive later.
• Mixing periods, for example June sales against July settlements, without matching by order.
• Ignoring that a SKU's category, price band or weight slab can change the fee that applies.
• Leaving out inbound freight, packaging and damaged-stock write-offs.

Make it repeatable and check fees against terms

A one-off sheet goes stale quickly. Rebuild it monthly, keep the same column logic, and flag any SKU whose margin falls below the threshold you set. When a SKU looks worse than expected, compare the fees charged with your agreed terms before you cut its price or ad budget.

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 coverage of Amazon and Flipkart is in scope discussion, so ask Fundle what is supported for your setup.