Set the decision boundary before using the numbers
Inputs and records to align
- One representative order or explicitly defined order cohort. (not complete)
- Net order revenue and product contribution before shipping, returns and acquisition. (not complete)
- Merchant-funded shipping and fulfilment cost for the selected basket. (not complete)
- Return probability or realised rate plus refund, recovery and reverse-logistics treatment. (not complete)
- Acquisition cost on an order- or customer-aligned denominator. (not complete)
- A declared minimum contribution or fixed-cost recovery requirement. (not complete)
Build one transparent decision model
Order contribution after acquisition = contribution before shipping and returns - merchant-funded shipping - expected return cost - aligned acquisition cost
- contribution before shipping and returns
- Net order revenue less product, payment, platform and included fulfilment cost (CU per order) — order and settlement records
- expected return cost
- Refund and reverse-logistics cost less evidenced recovery on the declared basis (CU per order) — return records or labelled scenario
- aligned acquisition cost
- Campaign cost converted to the same order boundary (CU per order) — campaign and attribution records
Use expected values only when the rate and recovery boundary are documented. Otherwise show discrete no-return and return cases rather than false precision.
- Build contribution before the three risk layers.
- Add current merchant-funded shipping on the chosen basket.
- Add a documented return-cost case without double-counting refunds.
- Convert CAC to the same order denominator.
- Run one-variable and combined downside cases.
- Set a monitoring threshold and hand the editable scenario to the relevant tools.
Worked example: one 48 CU pre-risk contribution
Invented order: 48 CU contribution before shipping, returns and acquisition; 9 shipping, 6 expected return cost and 20 aligned acquisition cost.
| Line | Calculation | CU |
|---|---|---|
| Pre-risk contribution | entered reconciled bridge | 48 |
| Merchant-funded shipping | entered order cost | (9) |
| Expected return cost | entered scenario | (6) |
| Acquisition cost | entered aligned basis | (20) |
| Contribution after acquisition | 48 - 9 - 6 - 20 | 13 |
| Case | Changed input | Result | Decision signal |
|---|---|---|---|
| Base | Shipping 9; return 6; CAC 20 | 13 | Compare with recovery requirement |
| Higher returns | Return cost 14 | 5 | Review offer and return economics |
| Higher CAC | CAC 29 | 4 | Review campaign ceiling |
Review the operational trade-offs before acting
- Assuming free shipping creates incremental orders.
- Using the customer shipping charge instead of merchant shipping cost.
- Subtracting gross refunds without recovery or already-reversed revenue treatment.
- Mixing customer CAC with order contribution.
- Changing basket, channel and product mix between cases.
- Calling a positive order contribution whole-business profit.
Decision questions
- Should I combine all three downside assumptions?
- Show each separately first so the driver remains visible, then run a combined downside case that reflects an explicit operating scenario.
- What if return evidence is weak?
- Use discrete no-return and return cases or a clearly labelled range rather than a precise expected cost.
Sources and methodology
- Free Shipping Threshold methodology — Margin101: Shipping contribution and bounded order-change scenarios.
- Returns Profit Impact methodology — Margin101: Refund, recovery and reverse-logistics mechanics.
- ROAS to Contribution methodology — Margin101: Acquisition ceiling and denominator boundary.
Test the editable scenario
- Free Shipping Threshold Planner
Set a free-shipping threshold without erasing contribution
- Returns Profit Impact Planner
Test period contribution after returns and recovery assumptions
- ROAS to Contribution Planner
Set target CPA and ROAS from contribution before advertising
- Ecommerce Order Profitability Planner
Test order contribution after the full fee stack