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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.

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The 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 pricegross price ÷ (1 + VAT rate)
Contributionnet revenue − all variable costs of the order
Profit margincontribution ÷ 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.

Common mistakes and how to fix them

Calculating with the gross price

Why it matters: With 19 % VAT, €19.99 gross is only €16.80 revenue. Using the gross price inflates the margin.

Fix: Always divide by 1 + VAT rate before you compare price and costs.

Forgetting returns and fees

Why it matters: Marketplace fees are charged on the gross price, and returned orders still cost shipping and ads. Leaving them out can turn a loss into an apparent profit.

Fix: Include fees as a percentage of the gross price and work with the expected return rate.

Calling markup “margin”

Why it matters: A 50 % markup on cost is a 33 % margin on price. Planning with the wrong one sets prices too low.

Fix: Margin is always relative to the selling price (net). See the guide on margin vs. markup.

Frequently asked questions

What is a good profit margin for an online shop?

It depends on your category and fixed costs. Many online sellers aim for a contribution margin of 20–40 % after advertising; below about 15 %, small changes in ad costs or return rates quickly make a product unprofitable.

Is margin calculated on the gross or the net price?

On the net price (without VAT) if you are VAT-registered – the VAT is not your money. If you use a small-business exemption and charge no VAT, the full price is your revenue.

Should advertising be part of the margin?

Yes, as cost per order (ad spend ÷ orders it brought in). A product that is profitable before ads can lose money once you have to pay for every sale.

How do I calculate margin for many products at once?

Export your products as CSV and use the catalogue analysis: it calculates contribution, margin and break-even price for every row with the same formulas.

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Sources

Fees, rates and rules change. We check the official sources listed here regularly – the date shows our last check.