Start with the revenue you actually keep
Begin with the amount paid for the product and shipping, then account for discounts, refunds and any sales tax collected on behalf of a tax authority. Do not treat pass-through sales tax as business revenue. Use the same revenue basis consistently when comparing products.
Costs to include
- Inventory: supplier price, inbound freight, duties and prep costs allocated per unit.
- Fulfilment: postage, pick-and-pack, packaging, labels, storage and shipping subsidies.
- Marketplace and payment: referral or transaction fees, listing fees, payment processing and fixed order charges.
- Marketing: promoted listings, paid search, coupons, affiliate commissions and other acquisition costs.
- After-sale costs: refunds, return shipping, replacements, damaged goods and chargebacks.
Separate variable costs from overhead
Variable costs rise with each order or unit. Fixed overhead—such as bookkeeping software, rent, insurance or a monthly subscription—does not necessarily change with one additional sale. Track both. Contribution margin shows what remains after variable costs; fully loaded profit also allocates overhead.
Put it into practice
Build one row per SKU and channel. Allocate shared freight and monthly expenses using a consistent method, and record the date and source of each fee assumption. Compare the estimate with actual marketplace statements and payment payouts every month.
Worked example: true cost on a $50 order
Assume an order has $50 in net sales after discounts and refunds, with sales tax excluded. The seller allocates $14 for landed inventory cost, $6 for fulfilment and shipping, $6 for marketplace and payment fees, $8 for attributable advertising, and $2 as an expected return or damage allowance. Total variable cost is $36, leaving $14 contribution per order. The contribution margin is $14 ÷ $50 = 28%.
This is contribution before fixed overhead such as software subscriptions, insurance or rent. If the seller leaves advertising out, the apparent contribution rises to $22, which may overstate the amount available to cover overhead and profit. Use actual settled fees and observed return data wherever possible; the example is illustrative.
For a deeper breakdown, see the guides to landed cost per unit and contribution margin.
Common blind spots
Do not forget shipping charged to the buyer if a marketplace calculates fees on it. Check whether discounts reduce the fee base, whether fees are refunded after a cancellation, and whether storage or fulfilment charges vary by size, weight or season. Use your account statements to confirm the treatment.
Try the product profit calculator to model the costs you know, then reconcile its result with actual order-level data.