How to calculate ecommerce profitability

From what the customer pays to what you actually keep: every layer in between, in the order it comes off, with a full worked example from a mid-sized store.

Last updated: August 21, 2026Guide

Almost every online store knows its revenue. Far fewer know their profit. And very few know their profit per order, which is the number behind every decision that matters: what to price at, how much to bid, whether a product is worth keeping, whether free shipping pays for itself.

The gap between revenue and profit is made of seven layers of cost. They always come in the same order, and when you skip a few the result is not “slightly optimiztic” — it is often the opposite of the truth.

In this guide

The seven layers between a sale and a profit
Gross revenue, net revenue and why the tax is not yours
Variable costs: the ones that grow per order
Contribution margin, the figure that matters
Fixed costs and break-even volume
Full worked example
The five most expensive mistakes

The seven layers between a sale and a profit

When a customer pays, that money passes through seven stations before it becomes profit:

Indirect tax. VAT, GST/HST or sales tax: you collect it but it is not yours.
Product cost. Making or buying the goods.
Outbound logistics. Shipping, packaging and picking.
Payment and platform fees. Gateway, marketplace, currency conversion.
Advertising. What you paid to win that order.
Returns. The share of orders that comes back, with everything it drags along.
Fixed costs. Rent, salaries, software, accountants.

The first six are variable: they grow as you sell more. The seventh is fixed: it is there whether you sell or not. That distinction is the key to the whole calculation, because only the variable ones come off order by order.

Gross revenue, net revenue and why the tax is not yours

Gross revenue is what the customer pays: product plus shipping plus any extras. Net revenue is that amount without the indirect tax. And the gap is much bigger than intuition suggests.

Tax included = gross - gross / (1 + rate) At 21%: 100 -> 17.36 tax · net 82.64 At 20%: 100 -> 16.67 tax · net 83.33 At 19%: 100 -> 15.97 tax · net 84.03 At 10%: 100 -> 9.09 tax · net 90.91

Note the classic error: at 21%, plenty of people subtract 21% of the final price (21) instead of working out the tax contained in it (17.36). Tax is calculated on the taxable base, not on the final price.

And there is a special case worth knowing: in the United States the displayed price usually does not include sales tax, and on marketplace sales the platform normally collects and remits it. That is why the US market starts with “price does not include tax” and a zero rate.

Variable costs: the ones that grow per order

Product cost

What the goods cost you landed in your warehouse: purchase price or materials, plus duties and inbound freight if you import. If you make it yourself, include your time — not doing so turns your salary into “profit”.

Outbound logistics

The carrier cost you absorb (not the one you charge the customer, which is already in revenue), the real packaging cost, and the cost of picking the order, whether that is your time or a 3PL fee.

Fees

Almost all of them have two parts, a percentage and a flat amount, and the flat part is what destroys small baskets. 2.9% + 0.30 is an effective 3.4% on an order of 60, but 5.9% on an order of 10. If you sell cheap, the fixed fee is your main enemy.

Marketplaces stack more layers, and they change by country: on Etsy a single order can carry six separate charges, with processing percentages and regulatory fees that vary with where your shop is; on Amazon FBA, the referral fee plus the fulfillment fee plus the selling plan, priced differently in each marketplace. That is exactly why each platform gets its own calculator here.

Advertising

If the order came from an ad, that ad is a variable cost of the order. The simple, honest-enough way to allocate it: monthly ad spend divided by monthly orders.

Returns

The variable cost most people forget, because it is not “losing the sale”: it is losing the sale and paying for the outbound leg that already shipped, the return leg, the ruined packaging, the gateway fee that does not come back, the inspection time and the share of goods that cannot be resold.

Contribution margin, the figure that matters

Contribution margin is net revenue minus every variable cost. It is what each order “contributes” towards fixed costs and, after that, profit.

Contribution margin = net revenue - variable costs Margin % = contribution margin / net revenue x 100

Why it is the figure: it sets the ceiling on what you can pay to win a sale. If an order contributes 20.55, paying 25 to win it loses you 4.45 — even though you invoiced 60, and even though your ad platform reports a 2.4x ROAS that looks reasonable.

Fixed costs and break-even volume

Fixed costs are not allocated per order in this kind of analysis: they are paid out of the sum of all the month's contribution margins. That is where break-even volume comes from — the order count above which you start making money:

Break-even orders = monthly fixed costs / contribution margin per order Example: 3,500 fixed costs / 20.55 = 171 orders a month

This is why running exactly at break-even ROAS is a trap: you would cover your variable costs and nothing else, so the fixed ones come out of your pocket.

Full worked example

500 orders a month, 60 average order, 21% tax included

Worked in the Spanish market and euros. The arithmetic behaves identically in any other currency.
Item	Per order	Per month
Gross revenue	60.00	30,000
Tax (21%)	-10.41	-5,207
Net revenue	49.59	24,793
Product cost	-20.00	-10,000
Shipping and packaging	-6.00	-3,000
Gateway fee (2.9% + 0.30)	-2.04	-1,020
Returns provision	-2.71	-1,355
Contribution margin	18.84	9,418
Advertising	-12.00	-6,000
Fixed costs	—	-3,500
Result for the month	—	-82

A store invoicing 30,000 a month, with a 38% contribution margin on net revenue, losing 82. Not because the costs are absurd, but because 6,000 of advertising plus 3,500 of fixed costs add up to 9,500 against 9,418 of margin.

And here is the interesting part: its actual ROAS is 30,000 / 6,000 = 5x. A 5x sounds excellent. Its break-even ROAS, though, is 60 / 18.84 = 3.19x, so the advertising is profitable at order level. The problem is not the campaigns: it is that 500 orders do not cover 3,500 of fixed costs at this margin.

Without separating variable from fixed, this store would have cut the advertising — the part that was working — and made the result worse.

The five most expensive mistakes

1. Working from the product gross margin

“I buy at 20 and sell at 60, so I make 40” ignores tax, shipping, packaging, fees and returns. In the example, that 40 was really 18.84 — less than half.

2. Mixing fixed and variable costs

Spreading rent across the month's orders makes your per-order margin move every time volume moves, and your advertising targets with it.

3. Averaging the whole catalog

If your products have very different margins, the average describes none of them. There is almost always one SKU that sells well and loses money.

4. Forgetting the cost of “free” shipping

Free shipping is a perfectly valid marketing decision, but it is a variable cost like any other. At 6 per order it is a third of the margin in the example.

5. Not provisioning for returns

The most expensive mistake because it is invisible: the margin you calculate is the margin of the orders that go well, not the real average.

Run your numbers

With your contribution margin worked out, the break-even ROAS calculator tells you how much you can pay for a sale and for a click.

Calculate my break-even ROAS

Frequently asked questions

What is the difference between gross margin and contribution margin?

Gross margin usually only subtracts the product cost. Contribution margin subtracts every variable cost: product, logistics, fees, advertising and the returns provision. For pricing and bidding decisions, the second one is the useful one.

Should I allocate fixed costs across orders?

For per-order profitability, no: it distorts the result whenever volume changes. Fixed costs are compared against the monthly sum of contribution margins, and that comparison gives you break-even volume.

How do I allocate advertising across orders?

Total monthly spend divided by total monthly orders. To refine by channel, use only that channel's orders — but keep the same method over time so comparisons mean something.

Does the tax I pay suppliers count as a cost?

If you can reclaim it, input tax on your purchases is normally recoverable and not a real cost, so your costs should be entered tax-exclusive. It is one reason to run the whole calculation on net amounts. Check with your accountant: this guide is not tax advice.

Does this work if I sell in several countries?

Yes, and that is exactly what the market selector is for: the tax and the fees change by country, but the structure of the calculation is identical. Run each market with its own settings and compare the resulting margins, not the prices.

How often should I redo this?

Whenever something on the list changes: supplier prices, carrier rates, platform fees, your return rate or your average ad cost. In practice, a quarterly review plus one whenever a platform announces changes.