Contribution margin per order: calculate the cost of a discount

Contribution per delivered order is net order revenue less the costs that change when that order is served. Calculate it using one consistent order group, then multiply by volume to see how much remains for fixed costs. A discount can increase sales while reducing the total money available for rent and salaries.

Choose the order denominator before dividing

Use the original delivered orders in a defined cohort, including those later refunded. For example, 100 delivered orders remain the denominator when ten customers return their purchases. Dividing net revenue by only the 90 retained orders while spreading fulfillment costs over all 100 mixes two different units.

Use revenue excluding sales taxes collected for others, subtract discounts and the refunds included in your return estimate, and add any shipping revenue included in the calculation. Include the matching delivery cost. For product cost, deduct only the cost of returned stock actually recoverable under your method; a refund does not necessarily destroy the item or restore it to saleable stock.

For the goods line, assume $2,600 cost left inventory and $200 of returned goods is recoverable at cost. Net goods cost is $2,400. Do not deduct another $200 as a return loss, and do not subtract the $500 refunds again below net revenue. Expected return handling is already in the $800 fulfillment line.

Keep contribution separate from gross margin and profit

Here, gross profit after goods cost is $6,000 − $2,400 = $3,600, or 60% of net revenue. Contribution after fulfillment and fees is $2,500, or 41.67%. If the included monthly fixed overhead is $2,200, 100 orders leave $300 after that overhead, before any excluded acquisition, financing or tax costs.

The SBA break-even method uses the difference between price and variable cost to cover fixed costs. Which costs vary depends on the decision and operating range. Existing salaried delivery staff may remain payable when one order is cancelled; an overtime shift required for extra orders is a cost of the expansion.

Calculate how much extra volume a discount needs

Suppose realized net revenue falls from $60 to $54 per order. For this comparison, goods cost stays $24, fulfillment $8 and fees $3 per order. Contribution falls from $25 to $19. These are fixed-dollar fee assumptions for the exercise; if your fee includes a percentage, refund fee or minimum, recalculate it using the actual terms.

Keeping the original $2,500 total contribution requires $2,500 ÷ $19 = 131.58 orders, rounded up to 132 whole orders. That is 32 more deliveries than the original 100. A 10% price reduction therefore needs about 31.58% more volume before whole-order rounding to replace the lost contribution under these assumptions.

In Excel, with base contribution in B2 and discounted contribution in C2, =B2/C2-1 calculates the required percentage increase when C2 is positive. With original orders in B3, =ROUNDUP(B3*B2/C2,0) calculates the replacement whole-order volume. At zero or negative discounted contribution, extra orders cannot replace positive total contribution through this formula.

Include the cost of delivering the extra orders

At 132 discounted orders, contribution is $2,508. With unchanged $2,200 overhead, $308 remains. But suppose serving more than 120 orders requires a $500 extra shift. Included fixed costs become $2,700, so the 132-order proposal loses $192.

To recover the original $300 result after that overhead, required volume is ($2,700 + $300) ÷ $19 = 157.89, rounded up to 158 orders. At 158, contribution is $3,002 and $302 remains after the included costs. Check whether the extra shift can deliver 158 orders and whether the lower price can attract them; the arithmetic does not establish demand.

Use the result for the right decision

A price cut should be compared with its effect on contribution, feasible volume and any new commitments. For acquisition spending, take the next step in the first-order economics guide; the $25 above is before acquisition. For a monthly sales threshold, use break-even against capacity.

Finally, put ad payments, stock purchases, collections and refunds into their actual cash periods. A profitable batch of orders can require funding before payment arrives. Use the weekly cash forecast when that timing is the constraint.