eCommerce Profit Margin Calculator
Most stores know their gross margin and almost none know what is left after payment fees, fulfilment, returns and marketing. This works out all three layers from the same six inputs, so you can see which one your business is actually run on.
INPUTS
Six
RUNS IN
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FORMULA
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Gross margin pays for nothing. Contribution is the pool everything else comes out of.
- The calculator
Three margins from six numbers
Change any input and every figure updates as you type. Nothing leaves your browser.
Formula: gross profit = price − landed cost. Contribution = (1 − return rate) × (price − cost − fees − delivery) − return rate × (delivery + fees). Net = contribution − marketing. Returns are assumed to come back resellable, with the outbound delivery and the payment fee lost; if yours are written off or cost you to process, add that to cost of goods. Nothing is sent anywhere — this runs entirely in your browser.
- Reading it
Which of the three you are actually run on
Gross margin is the one everybody quotes. Contribution is the one that decides what you can afford.
Gross margin is a merchandising number. It tells you whether you bought well, and almost nothing about whether the business works, because the costs that sit between a sale and your bank account — fees, packing, carriage, the parcel that comes back — all fall outside it.
Contribution is the pool that has to cover marketing, overheads and profit. It is the number to use when setting an acquisition target, deciding whether a product belongs on a marketplace, or judging whether a discount is affordable. If you hold only one of these three figures in your head, hold this one.
- Run it per product group — a blended answer is wrong at both ends of the range
- Margin and markup are different numbers; the last tile shows both
- Contribution per order is also your break-even cost to acquire a customer
- Getting it wrong
Four ways this number gets overstated
Each of these makes margin look better than it is, which is the direction that costs money.
Using the invoice price as cost of goods
Duty, inbound freight and inspection all sit between the invoice and the landed cost. Most stores overstate gross margin by several points on this alone.
Treating returns as a refund only
A return costs you the outbound delivery and usually the payment fee as well, and that is before anybody handles the parcel at your end.
Confusing markup with margin
A 50% markup on cost is a 33% margin on price. The two get used interchangeably in pricing conversations and the gap is where a plan quietly stops working.
Blending the whole catalogue
One margin figure across a $12 accessory and a $600 item describes neither. Run this per group and set targets per group.
If you want the wider version of this, our growth guide treats contribution margin as one of the five terms a business can actually move. If the question is what a promotion does to that margin, the discount and profit calculator takes the contribution figure from here and prices the discount. The other half of contribution per order is basket size, which the average order value calculator breaks into its two levers. On a specific platform, the Shopify and Amazon FBA calculators use each one’s own fee structure instead.
- Questions
Profit margin FAQs
The questions this calculator usually raises.
What is the difference between gross margin and contribution margin?
Gross margin is price minus the landed cost of the goods. Contribution margin also subtracts the variable costs of actually selling and delivering that order — payment fees, pick and pack, carriage and returns. Gross margin tells you whether you bought well; contribution tells you what is left to pay for everything else.
Is margin the same as markup?
No, and the confusion is expensive. Markup is profit as a share of cost; margin is profit as a share of price. A 50% markup is a 33% margin. The last output tile shows both so the difference is visible on your own numbers.
What is a good profit margin for eCommerce?
There is no useful universal figure, which is why this tool does not print one. A 20% contribution margin can be a strong business on a high-frequency consumable and an unworkable one on a single-purchase durable. The benchmark that matters is whether contribution covers your acquisition cost and your overheads.
Should marketing cost be in the margin calculation?
Not in contribution margin, which is why it sits in the last two outputs rather than the middle ones. Keeping marketing separate is what lets you use contribution to decide how much marketing you can afford, rather than assuming the current spend is correct.
How do I handle returns properly?
This calculator assumes returned goods come back resellable and that you lose the outbound delivery and the payment fee. If your category writes returns off, or you pay to inspect and repack them, add that cost to the goods or delivery input and the contribution figure will drop accordingly.
Where does this number get used?
Everywhere. Contribution per order is your break-even cost to acquire a customer, it sets the ROAS a campaign has to beat, and it decides whether a product should be listed on a marketplace after fees. The break-even ROAS calculator takes it as its main input.
- Next
Related tools and reading
CALCULATOR
Take the contribution figure above and find the ROAS a campaign has to beat before it earns anything.
CALCULATOR
The marketplace version, after referral and fulfilment fees have changed the margin.
FREE AUDIT
Five working days across six disciplines, including whether your margin model holds up.
Contribution thinner than you expected?
It usually is the first time somebody puts the delivery and returns lines in. The free audit checks the margin model as one of its twelve points.