Shopify shows you sales, orders and conversion rate. It doesn't show you how much of each order you keep. A product with a 76% gross margin can leave less than a quarter of its price as profit once payment fees, shipping, returns and ads are paid. This guide lists every cost to include and walks through one order in the US and the UK.
Fee figures in the examples are assumed for illustration. Payment processing rates depend on your Shopify plan, your country, the card type and the payment provider you use. Check the current rates for your plan in your Shopify admin.
Three margins, three questions
- Gross margin = (revenue − landed cost) ÷ revenue. Is the product cheap enough to make?
- Contribution margin = (revenue − every cost that comes with an order, including ads) ÷ revenue. Does each order make money?
- Net margin = (contribution − fixed monthly costs) ÷ revenue. Does the store make money?
Revenue means what you keep from the price. In the UK and EU, that is the price excluding VAT. In the US, it is the price excluding sales tax.
Every cost to include
1. Landed cost of the product
The supplier price plus packaging, freight, insurance, duty and delivery to your warehouse. Our guide on how to calculate landed cost goes through each part.
2. Payment processing
Every card payment carries a fee, usually a percentage of the order plus a fixed amount per transaction. International cards and currency conversion can cost more. If you use a payment provider other than Shopify Payments, Shopify may add its own transaction fee on top, depending on your plan.
3. Pick, pack and packaging
If you pack orders yourself, count boxes, mailers, tape and inserts. Your time is a cost too, even if you don't pay yourself yet. If you use a 3PL, include its pick and pack fee per order and any per-item fees.
4. Shipping to the customer
The postage or courier label for each order. If you offer free shipping, all of it comes out of your margin. If the customer pays for shipping, count what they pay as revenue and the label as a cost.
5. Returns and refunds
Returned items cost return postage and handling, and some can't be resold. Payment fees are not always given back when you refund an order. Set aside an allowance per order based on your real return rate, or a careful estimate before launch.
6. Discounts
Discount codes, bundle offers and free-shipping thresholds lower your revenue per order. Calculate margin on the price customers actually pay, not your list price.
7. Advertising
For most new stores, paid ads bring in most orders. Divide your total ad spend by your number of orders to get ad cost per order, and include it. Leaving it out is the most common way a store looks profitable on paper and isn't.
8. Fixed monthly costs
Your Shopify plan, paid apps, theme, domain, email tool and other subscriptions. They don't change with each order, so spread them across your monthly orders to get net margin.
9. Taxes
In the UK and EU, your prices include VAT, and the VAT belongs to the tax authority. In the US, sales tax is added at checkout in states where you must collect it, and you pay it to the state, so it isn't revenue either. Never calculate margin on a tax-inclusive total.
Worked example: one order in the US and the UK
A ceramic pour-over coffee set, sold with free shipping. All fees and costs are assumed for illustration. Costs in the UK column exclude any VAT the seller can reclaim.
| US | UK | |
|---|---|---|
| Price paid by the customer | $39.00 | £34.00 |
| VAT | – | £5.67 (20%) |
| Revenue excl. VAT | $39.00 | £28.33 |
| Landed cost | $9.50 | £8.00 |
| Payment processing (assumed 3% + 0.30) | $1.47 | £1.32 |
| Pick, pack and packaging | $2.50 | £2.00 |
| Postage to customer | $6.00 | £3.50 |
| Returns allowance | $1.00 | £0.80 |
| Ad cost per order | $9.00 | £7.00 |
| Profit per order | $9.53 | £5.71 |
| Contribution margin | 24% | 20% |
The gross margin on the US order is 76%: $39.00 minus $9.50 is $29.50, and $29.50 ÷ $39.00 is about 0.76. After every cost that comes with the order, 24% is left.
The UK order keeps less on a similar price because one-sixth of every VAT-inclusive price at 20% is VAT. The payment fee is also charged on the full £34.00 the customer pays, VAT included.
Now add fixed costs. If the US store pays $150 a month for its plan and apps (assumed) and ships 300 orders, that is $0.50 per order. Profit falls to $9.03 and net margin to about 23%.
Check the margin against your ads
The ad line is the one you control least. Take the profit before ads: $9.53 + $9.00 = $18.53 in the US example. That is the most you can spend on ads per order and still break even.
Divide the price by it: $39.00 ÷ $18.53 ≈ 2.10. That is the break-even ROAS. Any campaign that returns less than $2.10 in sales for every $1 of ad spend loses money on this product.
Ways to improve a thin margin
- Raise the order value with bundles, multipacks or a free-shipping threshold set above your average order.
- Cut landed cost. Order larger quantities, ship by sea, and reduce packaging volume.
- Review shipping. Compare carriers and box sizes. A smaller box can move a parcel into a cheaper band.
- Cancel apps you don't use. Small subscriptions add up when orders are few.
- Revisit your price. Our guide on how to price a product shows how to work back from a target margin.
Common mistakes
- Calculating margin on the VAT-inclusive price in the UK or EU.
- Treating gross margin as profit. It leaves out fees, shipping, returns and ads.
- Leaving out ad spend because it's paid on a different card or invoice.
- Forgetting returns and refunds, including payment fees you don't get back.
- Using the list price when most orders use a discount code.
Work it out before you stock up
Ecomtoro calculates profit per unit, net margin, ROI and break-even ROAS for Shopify, Amazon FBA and TikTok Shop in the US, UK and Germany. It removes VAT from UK and German prices, adds duty, and applies payment fees from published tables that you can override with your own rates. It also lists the sources it used. Use it to compare channels for the same product before you place your first order.
Frequently asked questions
What is a good profit margin for a Shopify store?
There is no single number that fits every store. Your margin has to pay for advertising, returns and fixed costs and still leave profit, so check your break-even ROAS and your net margin after fixed costs rather than aiming at a benchmark.
Is the Shopify subscription part of profit per order?
Not per order, because it doesn't change with each sale. Spread it across your monthly orders, together with your apps and other subscriptions, to calculate net margin.
Should I include VAT or sales tax in Shopify revenue?
No. VAT in the UK and EU and sales tax in the US are collected for the tax authority. Calculate your margin on the price excluding them.
How do I include ad spend in my margin?
Divide your total ad spend for a period by the number of orders in that period. Include the result as a cost per order, next to product cost, shipping and fees.
