How to calculate profit margin in e-commerce
Profit margin = contribution ÷ net revenue. Take the price without VAT, subtract every variable cost of the order – product, shipping, marketplace and payment fees, advertising, returns – and divide what is left by the net price. A €19.99 phone case sold on a marketplace keeps about €6.52 per order: a 41% margin.
Enter your own price and costs – the calculator does every step above, including VAT, fees and returns.
Open the profit calculatorThe formula
Work per order and with net amounts. VAT you collect belongs to the tax office, so it is not revenue. If you are not VAT-registered, the full price is revenue – but the VAT you pay on costs becomes a cost.
| Net price | gross price ÷ (1 + VAT rate) |
|---|---|
| Contribution | net revenue − all variable costs of the order |
| Profit margin | contribution ÷ net revenue × 100 % |
Which margin you are looking at
“Margin” is used for three different numbers. Mixing them up is the most common reason why a shop that looks profitable on paper loses money.
- Gross margin: price minus product cost only. Useful for buying decisions, far too optimistic for pricing.
- Contribution margin: price minus all variable costs of an order (product, shipping, fees, ads, returns). This is what decides whether one more sale makes you richer.
- Net margin: contribution minus fixed costs (rent, software, salaries) and taxes on income – for the whole business, not per order.
Step by step
- Convert the selling price to net: divide by 1 + VAT rate (e.g. 1.19 for 19 %).
- List every cost that occurs because of this order: purchase price, shipping and packaging, marketplace fee, payment fee, advertising per order, other costs.
- Account for returns: a share of orders comes back – revenue is refunded, but shipping, fees and ads are lost.
- Subtract the costs from the expected net revenue → contribution.
- Divide the contribution by the expected net revenue → profit margin.
Worked examples: Phone case for €19.99 on a marketplace
Selling price €19.99 incl. 19 % VAT, marketplace fee 15 %, purchase price €3.20, shipping €1.90, €1.50 advertising per order, 5 % returns.
- Net price
- €16.80
- Expected net revenue (after 5 % returns)
- €15.96
- Product cost (returned goods go back to stock)
- − €3.04
- Shipping
- − €1.90
- Marketplace fee (15 % of the gross price)
- − €3.00
- Advertising
- − €1.50
- Contribution per order
- €6.52
- Profit margin
- 40.9%
- Break-even price (incl. VAT)
- €9.93
Every order adds about €6.52 towards fixed costs and profit. Below €9.93 the product would lose money on every sale.