Stop Guessing: Profit Margin Explained
Most ecommerce sellers think they know their margin, but they’re usually missing at least one of these:
- Payment processing fees (percentage + fixed)
- Shipping (or shipping subsidies)
- Advertising cost per purchase (CPA)
- Taxes (VAT/GST components when prices are tax-inclusive)
The formulas (simple + useful)
Net Profit per sale
Net Profit = Revenue (net of tax) - Product Cost - Shipping - Ad Spend - Platform Fees
Profit Margin %
Profit Margin % = (Net Profit ÷ Selling Price) × 100
Markup %
Markup % = ((Selling Price - Product Cost) ÷ Product Cost) × 100
A real example
Let’s say you sell at $49.99:
- Product cost: $15.00
- Shipping: $4.50
- Platform fee: 2.9% + $0.30
- Ads per sale (CPA): $8.00
You can run these numbers in the calculators to see:
- Net profit per sale
- Profit margin %
- Daily / monthly / yearly projections based on units sold
Tip: If you can’t confidently explain where every dollar goes, you’re not ready to scale spend.