Guide
Shopify Profit Margin Guide
Shopify sellers should separate gross margin from contribution margin. Gross margin looks at revenue minus product cost. Contribution margin also includes payment fees, fulfillment, discounts, refunds, packaging and paid traffic.
Why contribution margin matters
Shopify stores often control their own traffic. That means CAC can make or break a product. If contribution profit before ads is $18, then $18 is the absolute break-even customer acquisition cost before overhead.
Improving margin
Increase average order value with bundles, reduce fulfillment cost, improve conversion rate, tighten discounts and use post-purchase offers. Each improvement gives the store more room to buy traffic profitably.
Common mistakes
Do not scale ads based only on revenue. Do not ignore app fees and payment fees. Do not assume repeat purchases before retention data exists.