The most common mistake in profit calculation is subtracting only the product purchase price from the selling price. In online sales, commission, payment fees, shipping, advertising and a return allowance are also added to the product cost.
The basic calculation
Contribution = Net sales revenue − product cost − variable selling expenses. Profit margin is the ratio of the contribution to net sales revenue. Markup is calculated on the purchase cost, so it is not the same as margin.
Which items go into the cost?
- Product purchase price and inbound shipping
- Marketplace commission or payment provider fee
- Customer shipping and packaging
- Advertising cost
- Allowance set aside for returns and damage
- The product's share of taxes and operating expenses
An example approach
Fill in the numbers with your own invoices and panel reports, not a fixed industry average. Commission rates can vary by category, advertising cost by product, and returns by season.
Leave room for discounts
When setting the list price, check that planned campaigns and coupons do not turn the contribution negative. A best-selling product that loses money does not deliver healthy growth.
To see purchase costs, you can access dealer products; to build your business model, read our bag selling guide.