E-commerce Profit Calculator
Quickly Calculate Your Profit Margin on Every Sale
When you sell a product, how much profit does that sale actually bring in?
This figure is called your profit margin, and it’s an important number for all e-commerce businesses to know. Fortunately, we have a simple and straightforward — and free! — online calculator you can use to determine your profit margin. But before we show you how it works, let’s bring it back to basics and answer the following questions:
- What is profit margin?
- What does profit margin tell us?
- Why is profit margin important for e-commerce businesses?
- What is a good profit margin for e-commerce businesses?
What is profit margin?
Profit margin is the percentage of revenue you retain after paying all costs associated with making and selling your products. When talking about profit margin per unit, we will use the following calculation:
(Product Sales Price – Product Costs) / Product Sales Price x 100 = Profit Margin
While this calculation appears simple at first, it can get complicated when you dig into it. Let’s break it down.
- Your product sales price is just one number: it’s the amount you sell one unit of product for.
- Your product costs include many different types of expenses — things like materials costs, certain labor costs, freight, merchant fees, and tariffs. These expenses are called cost of goods sold (COGS).
Let’s look at an example. Let’s say that you sell water tumblers. You price them at $25 each, and all direct costs that go into making and selling one of your tumblers is $18. What would your profit margin be?
To determine profit margin per unit, we would take your sales price of $25 and subtract the $18 per-unit cost. This gives you a per-unit profit of $7. We would then take this $7 profit and divide it by the revenue you earned from selling the tumbler: $25. This makes your profit margin 28%.
($25 – $18) / $25 x 100 = 28%
What does profit margin tell us?
Profit margin shows how much of each sale is profit. Using the water tumbler example from above, a profit margin of 28% means that you retain 28% of the sales price as revenue whenever you sell a tumbler. Put another way, it means that for every dollar in sales, you keep 28 cents.
Why is profit margin important for e-commerce businesses?
Profit margin is a useful metric for e-commerce businesses because it helps you determine how efficiently you produce and sell your product. The higher your profit margin, the more efficient your production and sales processes are, and the more money you’ll take home at the end of the day.
Profit margin also helps us learn about:
- Cost vs. perceived value: If you let costs get too high, your product’s price will exceed its value to customers, and you won’t make many sales.
- Pricing strategies: If your margin is too low, you may not be charging enough.
- Expenses: Profit margins help you look closer at expenses, which can help you identify areas where you can cut costs.
- Growth potential: Higher profit margins may tell you that you have some wiggle room to invest into new product lines, marketing, or scaling operations.
- Competitiveness: Compare your profit margin to industry benchmarks to see how you stand up against your competitors.
What is a good profit margin for e-commerce businesses?
There is no ideal profit margin for all e-commerce businesses. “Good” profit margins vary — sometimes significantly — by industry. For example, a 40% profit margin might be good for one e-commerce business, and 15% is good in another. You’ll want to invest some time researching your specific industry to come up with a good benchmark.
Before you start researching, though, know what you’re looking at. There’s a big difference between gross profit margin and net profit margin. Our profit margin calculator shows you gross profit margin, not net profit margin. Here’s the difference between the two:
- Gross profit margin is the profit that remains after taking only COGS into account. This means you’re only considering the direct costs of manufacturing and selling your products.
- Net profit margin is the profit that remains after considering all expenses. This includes COGS, but it also includes overhead costs, debt payments, administrative costs, and taxes.
The calculator we use — and the one we think is most useful for e-commerce businesses — determines gross profit margin. Keep this in mind when researching profit margin benchmarks.
How to use Fully Accountable’s e-commerce profit calculator
Even though most e-commerce businesses are drowning in financial data and complex numbers, many don’t know how to harness that data to make better business decisions. This is where we can help. Use our free calculator to determine optimal product pricing.
Our calculator works in reverse. We ask for all your expense data, then ask for either (1) your target profit margin percentage, or (2) your target markup percentage, and we back into the optimal sales price for your product.
Before you begin, collect all the direct costs of manufacturing and selling your product. This includes:
- Manufacturing costs
- Tooling costs
- Direct labor costs
- Inbound shipping and receiving costs
- Tariffs
- Payment processing fees
- Pick and pack fees
- Outbound shipping costs
- Returns processing costs
Now you can begin using the calculator. Here are the step-by-step instructions:
Step 1: Enter Your Cost Details
Line by line, enter the following information:
- Product Cost: This will be all COGS (manufacturing, tooling, labor, inbound freight, etc.).
- Product Cost Subject to Tariffs: Include product costs that are subject to tariffs to the extent those tariff costs were not already included in the COGS number.
- Shipping Cost: This is the amount it costs you to ship one product to a customer.
- Shipping Income: If you ask customers to pay for shipping, include those fees here.
- Sales Tax Rate (%): Include the sales tax rate applicable in the destination state. List the number as a whole number, not as a decimal.
- Tariffs Rate (%): Include the tariffs rate applicable to your manufacturing costs. List the number as a whole number, not as a decimal.
- Apply Sales Tax on Shipping Income? Select Yes or No depending on how the destination state’s sales tax laws.
Step 2: Enter Your Merchant Fees
Select the payment processor that you use: PayPal, Shopify Payments, Stripe, Amazon Pay, or Afterpay. Selecting one of these processors will auto-fill the Variable Fee and the Fixed Fee entries. If you use another processor not listed and want to enter Variable and Fixed Fees manually, select “Other (Manual Entry)”.
Step 3: Enter Your Target Profit Margin
Choose one of the following:
- Gross Margin %: profit as a percentage of revenue
- Markup %: profit as a percentage of cost
Enter your target percentage, and the calculator will determine your optimal selling price.
What the results mean for your business
The calculator will produce the optimal selling price for your business, taking into account the expenses you’ve entered, and the ideal profit margin you want to see. This can help you make better decisions in three distinct areas of your e-commerce business:
Product Pricing
The calculator spits out a recommended selling price, but that recommendation is based only on the data that you’ve given it. It doesn’t consider industry benchmarks, competitors’ pricing, market demand, product sales volume, the effects of product bundling or promotions or discounts, or any other factor. But the information you glean from the calculator is a great starting point for finalizing a pricing strategy.
Cost of Sales
By collecting information about your products, you’ll have a clear understanding of the costs that go into your products. This includes the cost to manufacture your products (like tools, materials, and warehousing fees), but also the cost to fulfill sales (like salesperson payroll, shipping costs, and returns). Facing the realities of your manufacturing and sales process can be eye-opening, and it can help you determine if you need to take a different approach. For example, if you see that your tariff costs are high, you might explore different sourcing pipelines. Or if the cost of payroll is higher than you thought it was, you might change your marketing strategy to rely less on your sales team.
Profit & Analytics
The best part of this calculator is that it’s flexible; you can plug different numbers into the calculator and watch in real time how the outcome changes. For example, if you are considering changing vendors, you can plug in the estimated cost changes into the calculator to see how it would affect your profit margin. With this information, you can forecast overall revenue and make better business decisions across the board, not just in your manufacturing and selling process.
Profit Margin FAQ
What is profit margin?
Profit margin is the amount of profit you make after deducting costs.
What is gross profit vs. net profit?
Gross profit and net profit are both useful numbers for businesses, but they tell us different things. Gross profit is revenue less direct costs, which are commonly referred to as cost goods sold (COGS). Net profit is revenue less all expenses, including COGS.
(For the purposes of this calculator, we are talking about gross profit margin, which means that we are disregarding overhead costs, interest, taxes, and debt payments.)
What costs do you need to consider when calculating profit margin?
The costs you’ll consider when determining gross profit margin (and the costs you’ll need to collect in order to use our profit margin calculator) are:
- Materials costs, including freight and tariffs
- Tools and supplies used in the production of your product
- Direct labor costs of making and selling your product
- Shipping costs
- Merchant fees
- Return processing costs
You will not include overhead costs like utilities, rent, and payroll for back-office staff, nor will you include debt payments, interest payments, or taxes. A great rule of thumb when using our calculator is this: if you cannot tie a cost directly to the production or sale of the product, it should not be included in the gross profit margin calculation.
How can I improve my profit margin?
There are many ways you can improve profit margin, but they all center around two actions: (1) lowering costs, (2) raising sales price. We go into more detail about maximizing profit margins by using e-commerce accounting services here.