What the calculator counts
Per order:
- Net revenue = selling price ÷ (1 + tax rate). VAT belongs to the tax office; with US sales tax added at checkout, the rate is 0%.
- Product margin = net revenue − product cost. Gross margin and markup come from this.
- Returns: every returned order loses its product margin, plus the cost of the return (label, handling). The calculator takes this off weighted by your return rate, assuming the item goes back into stock.
- Shipping is paid on every order, including the ones that come back.
- Payment fee: a percentage of the price plus a fixed fee, counted in full on every order. PayPal US keeps the whole fee on a refund.
- Ad cost per order (CPA) comes off last.
What is left is the profit per order (contribution margin). Fixed costs such as rent, software or your own salary are not included yet.
The example in the calculator
A product sold for 49.90 (no sales tax in the price), 15 product cost, 5.50 shipping, US PayPal Checkout (3.49% + 0.49), 8 ad cost per order, a 10% return rate at 6 per return:
| Item | Amount |
|---|---|
| Selling price | 49.90 |
| − Product cost | 15.00 |
| − Returns (expected) | 4.09 |
| − Shipping & packaging | 5.50 |
| − Payment fee | 2.23 |
| − Ad cost | 8.00 |
| = Profit per order | 15.08 |
Out of 49.90, 15.08 is left: a 30.2% margin. The 69.9% product margin looked much better. Break-even ROAS is 2.16: if 1 in ad spend brings in less than 2.16 in revenue, every order loses money.
Profit margin formula, markup and gross margin
- Margin = profit ÷ net selling price: how much of the price you keep.
- Markup = profit ÷ cost: how much you add on top of what you paid.
- Gross margin = (net selling price − product cost) ÷ net selling price, before any other cost.
A 100% markup is a 50% margin. A 50% markup is a 33.3% margin. Mix the two up and your prices end up too low.
Where the margin disappears
Two costs are underestimated almost every time: returns and ads. In the example, a 10% return rate costs 4.09 per order, more than the payment fee. At a 30% return rate the profit drops from 15.08 to 6.90. Some returns can be prevented, for example when a customer gets a fast, correct answer before they send the order back; how to reduce your return rate covers it.
And one more cost appears in no calculator: the time spent on support emails per order. What a support ticket costs puts a number on it.