Shopify guide
Shopify Contribution Margin: A First-Order Profit Model
A Shopify dashboard can show revenue and conversion while the store loses money on the first order. The missing bridge is contribution margin: the amount left after costs that change with each order. This guide builds a first-order model, explains which Shopify fees require account-specific verification and shows when repeat purchase should and should not influence acquisition decisions.
The first-order equation
Net merchandise revenue − cost of goods − fulfillment − payment costs − return allowance − acquisition cost
Keep tax collected for authorities outside revenue. Treat seller-funded discounts as a reduction in merchandise revenue. If shipping revenue and shipping expense are material, show both instead of netting them invisibly.
Why Shopify fee inputs must be store-specific
Shopify's official help explains that Shopify Payments processing rates vary by plan, card type and market. It also distinguishes payment processing fees from third-party transaction fees and currency conversion. Therefore, a universal percentage in a public calculator is only a placeholder. Check the rate shown in the store's payment settings and payout exports.
Worked first-order example
| Line | Amount | Comment |
|---|---|---|
| Product revenue after discount | $58.00 | Customer's merchandise total |
| Shipping revenue | $0.00 | Free shipping offer |
| Landed product cost | −$17.50 | Goods, packaging and inbound freight |
| Pick, pack and outbound shipping | −$8.40 | Actual expected average |
| Payment and variable platform costs | −$2.10 | Store-specific planning input |
| Return allowance | −$2.90 | 5% of merchandise revenue |
| Customer acquisition cost | −$18.00 | Paid first-order CAC |
| First-order contribution | $9.10 | 15.7% contribution margin |
Improve the structure, not only the ad metric
If CAC is too high, the answer is not always cheaper traffic. A bundle can raise average order value without doubling shipping cost. A free-shipping threshold can move small carts upward. A clearer product page can lift conversion. Model the cost of the incentive before launching it; a bundle that raises revenue but adds heavy fulfillment or return risk may not improve contribution.
Do not borrow profit from an unproven second order
Lifetime value is useful only when supported by cohorts. New stores should first ask whether the first order is contribution-positive or whether the planned loss is deliberate and affordable. When using repeat purchase, separate observed repurchase from a forecast and discount future contribution for refunds, fulfillment and time.
Reconcile the model with payouts
Once a month, choose a completed period and compare gross orders, discounts, refunds, payment fees, shipping expense and advertising cost with the model. If the model says 16% contribution and the payout reconciliation says 7%, find the missing row instead of changing the target.
Five questions before scaling
- Is the payment-rate input taken from this store and plan?
- Does fulfillment include packaging and zone variability?
- Are refunded orders and unsellable returns reflected?
- Is CAC measured for new customers rather than all orders?
- Does the product still work without assuming an unproven repeat order?
Sources and verification
Platform rules can change. These links are provided so readers can verify current terms before acting.
- Shopify Help: fees and costs — processing, third-party transaction and currency conversion fees
- Shopify Help: viewing payout fees — where merchants can verify account-level rates
The first-order model deliberately excludes unproven lifetime value. Add repeat purchase only after a mature customer cohort supports the assumption.