How to Calculate Contribution Margin by Ordering Channel

Contribution margin shows what remains after the costs that change with, or are avoidable because of, an order. It is useful for channel and pricing decisions when the calculation is consistent and reconciled to real evidence.

Use the core calculation

Contribution = net sales − food − packaging − payment − channel − promotion − fulfilment − incremental labour − expected failure cost.

Decide whether net sales include VAT and use the same basis across channels. Keep optional tips and worker distributions outside restaurant revenue where appropriate.

Define each cost

Handle fixed cost correctly

A monthly licence is not usually a variable cost per order, but it may be avoidable if the channel closes. Report contribution before shared fixed cost and then a separate fully loaded view for long-term viability. Do not hide allocation choices.

Work an illustrative example

An order with £30 net sales, £9 food, £1.20 packaging, £0.80 payment, £4.50 channel cost, £3.50 delivery and £1 expected failure cost has £10 contribution before shared overhead. The figures are illustrative; the business must use actual recipes, statements and labour.

Reconcile and review

• Match channel totals to order records.
• Match fees and refunds to provider statements.
• Check bank settlements.
• Review unusual negative orders.
• Version cost assumptions.
• Separate observed and allocated cost.

Practical next step

Calculate contribution for 20 recent orders from each major channel. Use order-level evidence first, then compare the result with the monthly financial statement.

Use order-level and period-level views

Order-level contribution helps diagnose baskets, zones and promotions. Period-level contribution captures step-fixed labour, monthly fees and failure patterns. Use both. A single order may look positive while the channel as a whole cannot cover the extra shift or support contract it requires.

Handle promotions and refunds consistently

Record whether a discount is funded by the restaurant, marketplace or supplier. Match partial refunds to the original items and channel. Do not treat a net payout as net sales or deduct the same commission twice. Keep chargeback fees and recovered amounts visible.

Set a calculation standard

Publish a short metric dictionary covering VAT basis, completed-order definition, labour method, overhead view and rounding. Version the assumptions and require finance approval before a team changes them. This prevents marketing, operations and suppliers from presenting incompatible “margin” figures.

Validate unusual results

Investigate negative contribution, very high margin and abrupt month-to-month changes. Check duplicated refunds, missing packaging, commission calculated on a different base and labour allocated twice. Preserve an adjustment log rather than overwriting the source data.

Related guides

• Payments — the main guide for the wider topic.
• Channel Profitability — the broader guide that frames this implementation.
• Comparing Profitability Across Channels — a closely related operational control to review alongside this page.
• Pricing Strategy for Online Orders — a closely related operational control to review alongside this page.

Sources and date checked

Guidance checked: 24 July 2026. Recheck official guidance, local requirements and supplier documentation before changing a live operation.

• HMRC: record keeping for VAT