How to calculate dropshipping profit and margin (with a free calculator)
Plenty of dropshipping stores have sales and still lose money. The reason is almost always the same: a cost that was never counted. Here is the complete calculation, with a worked example you can check in the free profit calculator.
The formula
Profit per sale = selling price − product cost − shipping − marketplace fee − payment fee − advertising per sale − other costs.
Profit margin = profit ÷ selling price. A 25% margin means you keep 25 cents of every dollar a customer pays.
The costs people forget
- Payment processing — often around 3% plus a fixed amount per transaction.
- Marketplace or platform fees — a percentage of every sale on eBay, Amazon or Etsy, or transaction fees on your store platform.
- Advertising per sale — total ad spend divided by the number of sales it produced.
- Returns and refunds — set aside a few percent, more for clothing and electronics.
- Currency conversion — if your supplier and your customers use different currencies.
- Apps, packaging and inserts — small per order, large over a year.
A worked example
You sell a product for $29.99. It costs $8.50, shipping to the customer is $4.00, the marketplace takes 13% ($3.90), payment processing is 2.9% + $0.30 ($1.17), ads cost $5.00 per sale and packaging $0.50.
Profit = 29.99 − 8.50 − 4.00 − 3.90 − 1.17 − 5.00 − 0.50 = $6.92. Margin = 6.92 ÷ 29.99 = 23%. That is a workable product.
Break-even ad cost: the number that decides your ads
Take the profit before advertising: in the example, $6.92 + $5.00 = $11.92. That is the most you can pay in advertising for each sale without losing money.
If your ads cost $15 per purchase, the product loses $3.08 on every sale, however many you make. Watch cost per purchase, not clicks.
Pricing for the margin you want
To reach a target margin, divide your fixed costs per sale by what is left of the price after percentage fees and the target itself.
In the example, fixed costs are 8.50 + 4.00 + 0.30 + 5.00 + 0.50 = $18.30. For a 30% margin: 18.30 ÷ (1 − 0.13 − 0.029 − 0.30) = $33.83. The calculator shows this price for any target.
What is a good margin?
Aim for 20–30% after every cost, advertising included. Below about 15%, a small rise in ad costs or a few returns turns a profitable product into a loss-maker.
Five ways to improve a thin margin
- Sell a set of two or three: shipping and fees rise less than the price.
- Improve the listing — photos and a clear benefit justify a higher price.
- Ask the supplier for a lower price once you order regularly.
- Choose faster, cheaper shipping from a warehouse closer to your customers.
- Reduce returns with exact sizes, compatibility lists and honest photos.
Put it into practice: find products with real sales and check your margin before you buy stock. Trending products · Profit calculator