Selling & running a business
E-commerce profit and margin: a practical formula
Calculate contribution profit per order without confusing revenue, markup, margin, fees, refunds, and advertising cost.
The useful formula
Start with expected revenue after refunds. Subtract product cost, fulfilment, payment fees, marketplace fees, and advertising cost. Profit margin is profit divided by revenue after refunds.
What belongs in the inputs
Use the fees and refund rate from your own account and period. Do not copy a marketplace rate from an old article: plans, countries, categories, and payment methods differ.
How to use the result
Compare the break-even price with the real selling price, then test realistic and cautious scenarios. A positive gross margin can still become a loss after fulfilment and acquisition costs.
Make the right call
A 50.00 order is not 50.00 of usable revenue
Try this fictional USD order in the profit tool: sale 50, product 20, fulfilment 5, payment fee 3% plus 0.30, marketplace fee 10%, advertising 8 and expected refunds 4%. These are teaching inputs, not any platform’s current rates.
| Check | Example or action | How to judge the result |
|---|---|---|
| Revenue after expected refunds | 50.00 × (1 − 0.04) = 48.00 | Use the same sales period for your refund estimate. This is expected revenue, not a forecast of the next individual order. |
| Costs and contribution | 20 + 5 + 0.30 + 8 + 50 × 0.13 = 39.80; contribution = 8.20. | Margin uses 8.20 ÷ 48.00 ≈ 17.08%. A markup calculation uses a different denominator and is not interchangeable. |
| What if you discount to 45.00? | Expected revenue 43.20; costs 39.15; contribution 4.05. | A 10% price cut roughly halves contribution in this scenario. The break-even price is about 40.12 under the unchanged assumptions. |