What is an ecommerce profit margin?
Profit margin shows how much of each sale remains as modeled profit after the costs you enter. Revenue alone can look healthy while product cost, fulfillment, payment fees and advertising consume most of the order. A margin calculation puts those costs into the same unit-economics view.
Profit margin formula
Total modeled costs = COGS + Shipping/Fulfillment + Payment Fees + Advertising + Other Variable Costs
Profit per order = Selling price − Total modeled costs
Profit margin = Profit per order ÷ Selling price × 100
Worked ecommerce example
Suppose an order sells for $49.95. Product cost is $10, shipping is $4.89, payment/platform fees are 3%, and advertising costs $10 per order. Payment fees are about $1.50, total modeled costs are about $26.39, and modeled profit is about $23.56. That is a profit margin of about 47.2% on the costs entered.
Margin vs markup
Margin and markup answer different questions. Margin divides profit by selling price. Markup divides profit by modeled cost. A product can therefore have a markup percentage that looks much larger than its profit margin. Keep the two metrics separate when pricing products or comparing unit economics.
Contribution margin before advertising
The calculator also shows contribution before ads by excluding the advertising cost entered. This is useful because contribution before ads indicates how much of the order is available to pay for customer acquisition and profit. That connects directly to break-even ROAS and maximum CPA.
How the target selling price works
The target-price calculation estimates the selling price required to retain your chosen margin while keeping the entered fixed per-order costs and percentage fee rate constant. If your desired margin plus the fee rate approaches 100%, a viable target price cannot be calculated.
What costs should ecommerce sellers include?
Include costs that change with, or can reasonably be allocated to, an order: product cost, outbound shipping, fulfillment, payment processing, marketplace fees, advertising cost per acquired order, packaging, expected returns and other per-order charges. Fixed overhead, taxes and accounting treatment may require a broader business-profit model.
Profit Margin Calculator FAQ
What is a good ecommerce profit margin?
There is no universal margin that fits every ecommerce business. Product category, fulfillment model, return rates, customer acquisition costs, overhead and growth strategy all matter. Use your own economics rather than treating a generic benchmark as a target. See the Good Ecommerce Profit Margin guide for a deeper explanation of gross, contribution and net margin.
What is the difference between profit margin and markup?
Profit margin is profit divided by selling price. Markup is profit divided by modeled cost. Because they use different denominators, the percentages are not interchangeable.
Should I include advertising cost?
Include advertising cost per order when you want an after-ad profit margin. Set advertising to zero if you want to focus on contribution before customer acquisition.
What does break-even selling price mean?
It is the estimated selling price at which revenue covers the entered per-order costs, including the percentage-based fee, leaving approximately zero modeled profit.
Does the calculator include taxes and overhead?
No. It uses only the inputs shown. Taxes, salaries, subscriptions, warehousing, chargebacks, returns and other overhead may materially change actual business profit.