Which costs belong in contribution margin for ad decisions

The tier number does not matter for bidding

For ad decisions you do not need DB1, DB2 or DB3 (the German tiers of contribution margin). You need two figures with a clear boundary. The first is the contribution margin per order before advertising. You measure bids, break-even ROAS and target ROAS against it. The second is the contribution margin for the month after advertising. You check against it whether fixed costs are covered. One question draws the line between the two: does this euro arise because exactly this additional order comes in?

I think this is the definition on which finance and marketing can agree fastest. The argument about tiers is an argument about labels, and the textbooks and glossaries do not agree with each other on them either.

Why finance and marketing calculate past each other

Look at where common sources place advertising costs in the tier calculation. The results contradict each other:

Each of these allocations is logical in itself. For steering a campaign, though, none of them works without translation. If finance reports a DB2 of 35% and marketing uses it to calculate a target ROAS, those 35% may already have advertising deducted or may still be missing shipping. Both lead to wrong bids, and nobody notices because both sides use the same word.

What belongs in the bidding figure

The bidding figure includes every cost block that rises with an additional order. That is the classic idea of contribution margin: revenue minus variable costs, and as long as that is positive, the individual sale pays off in the short term, even if the product makes a loss on full costs (Munich Business School).

For an online shop, that means specifically:

• In: purchase price or production cost, shipping and packaging, payment fees, marketplace or platform fees per sale, affiliate and influencer commissions per sale, expected returns costs including handling, restocking and reshipping (TrueProfit), as well as discounts and goods losses (Für-Gründer.de).
• Not in: salaries, software, rent, fixed agency or freelancer fees, bookkeeping. These costs do not change if one more order comes in tomorrow.
• Not in, for a different reason: the advertising costs themselves.

ROAS sets advertising costs against value. If advertising is already inside the contribution margin, you deduct it twice. Suppose an order brings €80 net value and €30 contribution margin before advertising. The break-even ROAS is 80 ÷ 30 = 2.67. If someone first deducts an average of €20 advertising per order, €10 of "contribution margin" remain, and the apparent break-even ROAS jumps to 8. The campaign would be throttled at any realistic target. How to derive the threshold from the right figure is covered in the article on break-even ROAS.

Worked example: the same order, two profit figures

Suppose a shop sells products with an order value of €80 net. The figures are invented and rounded.

For the same order, Google Ads would report a higher, estimated gross profit. According to Google, that is the difference between revenue and cost of goods from the Merchant Center feed (Google Merchant Center Help). In the example that would be €40, a third more than the actual room for manoeuvre. This value does not know about shipping, payment fees or returns. Anyone who calculates with it arrives at a break-even ROAS of 2.0 instead of 2.67 and bids too high. If you want to pass the margin directly as a value, read margin as conversion value first.

Where fixed costs belong

Fixed costs do not belong in the bidding figure but in a second check at monthly level. That corresponds to direct costing: variable costs are charged to products, the period's fixed costs as a whole. Allocating fixed costs to the individual product distorts decisions (Munich Business School).

For advertising, this means that a flat allocation per order makes every additional order artificially expensive. You would switch off sales that actually bring money into the till, and that worsens the coverage of fixed costs instead of improving it.

The monthly check is simple. Suppose the shop from the example makes 1,000 orders:

1,000 × €30 contribution margin before advertising = €30,000 minus €20,000 ad spend = €10,000 contribution margin after advertising minus €15,000 fixed costs = −€5,000

Every single order was profitable, the month was not. The answer is not a fixed-cost surcharge in the bid but a target ROAS with enough distance from break-even, so that enough is left after advertising for the fixed costs. How much distance that should be is a business decision and the subject of setting target ROAS.

For controlling, the tier calculation remains useful all the same. The practical allocation question there is: do these fixed costs disappear if the product, the product group or the division disappears (Für-Gründer.de)? According to WHK Controlling, smaller retailers can stop breaking costs down after DB II and deduct the remaining fixed costs as one block (WHK Controlling). For bids, that changes nothing.

Agreeing between controlling and marketing

I would put the agreement in writing, one line per cost type:

That gives each side its figure. Marketing steers against the contribution margin before advertising, controlling checks the contribution margin after advertising against the fixed costs. Whether the first figure is called DB2 internally is then a matter of taste.

Where the data comes from

The data almost always exists already, just scattered:

• Purchase price: from the inventory system or ERP. Averages are enough. Google also says that cost of goods in the feed does not have to be precise and that an average should be given where costs fluctuate (Google Merchant Center Help).
• Shipping and packaging: from the logistics provider's invoices, divided by the parcels shipped.
• Payment fees: from the payment providers' statements, as a percentage of revenue.
• Returns: rate per category from the shop system, cost per return from logistics and warehouse. Why this is a media topic is covered in returns and ad profitability.
• Commissions: from the affiliate network or the influencer contracts.

If you want to use profit reports in Google Ads, you need conversions with cart data. The item IDs in the conversion tag must exactly match the ID in the linked Merchant Center feed (Google Ads Help). That gives you revenue minus cost of goods per product. You add the other variable costs outside the account.

When the rule is not enough

The rule describes the individual order and is therefore a short-term calculation. In three cases I would deliberately extend it.

First, with step-fixed costs. One additional order costs no warehouse staff. A hundred additional orders a day can trigger another shift. If marketing plans a big jump in volume, that step belongs in the monthly check before the budget rises.

Second, with new customers who buy again. The contribution margin of the first order then underestimates what a customer brings. That is a deliberate uplift on the bidding figure and should be shown separately, not mixed into the cost definition.

Third, with costs that are tied proportionally to advertising, such as an agency fee as a percentage of spend. It arises with the advertising euro, not with the order, and belongs on the ad cost side. At 10% of spend, the break-even ROAS in the example rises from 2.67 to 2.93. If you want to steer by profit rather than revenue, the trade-offs are in POAS instead of ROAS.