A retailer emails asking for 300 units at a price that is lower than your line sheet, with free shipping and net 30 terms. Do you take it? Gross margin will not tell you, and net margin depends on how you spread your overhead. The number that actually answers the question is contribution margin: the revenue an order brings in minus every cost that exists only because you took the order. If that number is positive, the order puts money toward your fixed costs and profit. If it is negative, you are paying to work.
This guide shows how to compute contribution margin for a single wholesale order, walks through an example with round numbers, and lays out the rules for saying yes, no, or "yes, if."
What contribution margin is
Contribution margin is revenue minus variable costs. Variable costs are the ones that go up and down with each unit or each order: the product itself, packaging, outbound freight you pay for, payment processing, commissions, samples, any discount or allowance, and the labor to pick and pack if you pay for it per order.
It excludes fixed costs: rent, salaries, software, insurance, the things you pay whether or not this order exists. That exclusion is the whole point. A fixed cost is already spent; the question for a new order is only whether it covers its own variable costs and leaves something over.
Per unit, contribution margin is price minus variable cost per unit. Per order, it is that number multiplied by units, minus any order-level costs such as a shipping charge you absorb. The distinction from gross and net margin is covered in gross margin vs net margin.
Why wholesale orders need this number
On a marketplace, every unit sells at roughly the same price with roughly the same fees, so one unit economics model covers everything. Wholesale is different. Every order has its own price, quantity, shipping arrangement, terms and sometimes its own allowances. Two orders for the same product can have wildly different contribution, and a line sheet price that works at 48 units with the buyer paying freight can lose money at 300 units with a discount and free shipping.
Contribution margin per order is how you evaluate each deal on its own terms. It also handles the cases founders find hardest: a large order at a low price, a strategic account that wants concessions, a distributor asking for a deeper discount than a retailer.
A worked example, order by order
Your product has a 6 dollar landed cost. Packaging and pick-and-pack add 1 dollar per unit. Your standard wholesale price is 14 dollars.
Order one: a boutique buys 48 units at 14 dollars, pays its own freight.
- Revenue: 48 multiplied by 14 = 672 dollars
- Variable cost: 48 multiplied by 7 = 336 dollars
- Contribution: 336 dollars, or 7 dollars per unit
Order two: a regional chain wants 300 units at 12 dollars with free shipping. Freight will cost you about 180 dollars.
- Revenue: 300 multiplied by 12 = 3,600 dollars
- Variable cost: 300 multiplied by 7 = 2,100 dollars
- Freight: 180 dollars
- Contribution: 1,320 dollars, or 4.40 dollars per unit
Order three: a distributor wants 1,000 units at 9 dollars, pays freight, but wants a 2 percent early payment discount and a one-time 200 dollar marketing allowance.
- Revenue: 1,000 multiplied by 9 = 9,000 dollars, less the discount of 180 dollars = 8,820 dollars
- Variable cost: 1,000 multiplied by 7 = 7,000 dollars
- Allowance: 200 dollars
- Contribution: 1,620 dollars, or 1.62 dollars per unit
All three orders contribute. The chain order pays less per unit than the boutique but adds four times as much in total. The distributor order adds the most total dollars, but on a per-unit basis it is thin enough that any surprise, a chargeback, a return, an increase in freight, could wipe it out. Whether order three is "worth it" depends on what else you could do with 1,000 units and the cash it ties up, which is where the next section comes in.
Contribution margin per unit versus per order versus per hour
Three views of the same order, and each can flip the decision:
- Per unit tells you how much cushion each unit has. Thin per-unit contribution means high sensitivity to any cost surprise.
- Per order tells you the total dollars added. This is the number that pays the rent.
- Per constrained resource tells you whether this order is the best use of something scarce. If you are short on inventory, contribution per unit matters most. If you are short on time, contribution per hour of your work matters most. If you are short on cash, contribution per dollar tied up until the buyer pays matters most.
The distributor order above looks great per order and weak per unit. If you have unlimited stock and a factory that can restock in three weeks, take it. If those 1,000 units are your entire inventory for the quarter, it is probably the wrong use of them. Unit economics for a product brand goes deeper on comparing channels this way.
The rules for yes, no and "yes, if"
- Yes when contribution per order clears your per-order overhead several times over and per-unit contribution leaves room for surprises. This is the logic behind how to set your MOQ: the minimum exists so that every order is a yes.
- No when contribution is negative or close to zero. There is no volume that makes a negative-contribution order profitable. Ten thousand units at a loss is a bigger loss.
- "Yes, if" when contribution is positive but thin. Trade the concession for something that improves the number: the buyer pays freight, terms shorten, the discount applies only above a higher quantity, the allowance is one-time rather than ongoing. How to negotiate a wholesale deal covers the trades that work.
One exception is deliberate: a low-contribution first order with a strategic retailer whose logo opens other doors. Take it with your eyes open, cap it in size, and be honest with yourself that you are buying a reference, not a profit.
Costs brands forget to count
The most common way to get contribution wrong is to leave out a variable cost that feels small:
- Free samples sent to win the account
- Shipping you absorbed because "it was only one pallet"
- Payment processing on card payments
- A sales rep or broker commission, which is a variable cost on every order they touch
- Compliance chargebacks from larger retailers for labeling or delivery misses
- Returns and damaged goods allowances
- The cost of financing net terms, if you use factoring or a credit line
Add every one of these to the order before you compute contribution. Several of them are why a deal that looked fine at the line sheet price turns out to be neutral. The free wholesale margin calculator lets you test an order size and price against these costs before you reply to the buyer.
Building it into your process
Make contribution the default check on every incoming order, not a special analysis:
- Keep a per-SKU variable cost that includes product, packaging and pick-and-pack.
- For each order, subtract that, then subtract any order-level costs and any concession the buyer asked for.
- Compare the result to your per-order overhead and to your per-unit floor.
- Decide, or counter with a "yes, if."
This takes two minutes once the numbers are in a spreadsheet, and it turns "should I take this order" from a gut call into a math problem.
The short version
Contribution margin is revenue minus variable costs, and it is the right test for a single wholesale order because every wholesale order is different. Compute it per unit, per order and per whatever resource you are short on. Say yes when it comfortably clears overhead, no when it is negative, and "yes, if" when a concession can turn a thin order into a good one.
The math only matters once orders are arriving, and getting them to arrive is the part WholesalePilot handles: it finds the retail buyers, wholesalers and distributors that match your product, verifies their emails, sends outreach in your name and books the calls, so you spend your time deciding which orders to take rather than hunting for them.
Volume never fixes a negative contribution. It only makes it bigger.
Paste your product link and see the buyers who are a fit, free, and start the conversation.