Definitions used
Profit numbers are only useful if everyone means the same thing by them. This calculator uses these definitions, and counts each cost exactly once:
Gross profit = Net revenue − Product cost
Contribution before ads = Gross profit − Shipping − Packaging − Payment fees − Platform fees − Returns allowance − Other variable costs
Contribution profit = Contribution before ads − Advertising per order
Profit margin = Contribution profit ÷ Net revenue
Markup = (Net product price − Product cost) ÷ Product cost
Break-even ad cost (CPA) = Contribution before ads
Break-even ROAS = Net revenue ÷ Contribution before ads
- Sales tax and VAT are never revenue. They are collected for the tax authority. With tax-inclusive prices the tax is removed; with tax added at checkout it is added on top of what the customer pays.
- Payment and platform fees are charged on the full payment, including shipping and tax, because that is the amount processed.
- Contribution profit is not net profit or cash flow. It ignores fixed costs (subscriptions, staff, rent) and timing (when you pay suppliers versus when payouts arrive).
Worked example
Illustrative figures for a single-item order with no sales tax:
| Price $49.00 − 10% discount | Net revenue $44.10 |
| Product cost | −$14.50 → gross profit $29.60 (67.12% gross margin) |
| Shipping $6.80 + packaging $0.90 | −$7.70 |
| Payment fee 2.9% of $44.10 + $0.30 | −$1.58 |
| Returns allowance 4% of net revenue | −$1.76 |
| Contribution before ads | $18.56 |
| Advertising per order | −$9.00 |
| Contribution profit | $9.56 (21.68% profit margin) |
The markup on product cost is 204.14%, yet barely a fifth of revenue is left after variable costs. The store can spend up to $18.56 in advertising per order - a break-even ROAS of about 2.38 - before each order starts losing money.
How to use the results
- Contribution profit per order tells you whether each sale helps cover your fixed costs. A negative number means more sales make things worse.
- Break-even CPA is the ceiling for your cost per acquisition on a first order. Bid below it to leave room for profit. If customers reliably reorder, you may justify a higher acquisition cost, but that relies on repeat-purchase assumptions this calculator does not make.
- Break-even ROAS converts the same limit into the metric ad platforms report. Note that platforms often measure revenue including tax and shipping, so compare like with like.
- Try changing the discount: a 10% discount removes 10% of revenue but none of the costs, so it cuts contribution profit by far more than 10%.
Common mistakes
- Calling markup "margin". A 50% markup is only a 33% margin.
- Using the supplier price instead of landed cost. Freight, duty and import fees are part of product cost - use thelanded cost calculator first.
- Leaving out payment fees on tax and shipping, or counting the tax you collected as income.
- Double counting shipping: enter what the customer pays as revenue and what the carrier charges you as a cost, not the difference in both places.
- Ignoring returns. Even a few percent of refunds and unsellable returns materially reduces contribution.
Methodology
All amounts are calculated per order in whole cents: each fee and allowance is rounded once, half away from zero, and subtotals are exact sums. A percentage discount is capped at 100% and a fixed discount cannot exceed the price. Tax added at checkout is applied to the discounted price plus shipping; real tax rules for shipping charges vary by jurisdiction. No Shopify plan rates or payment fees are built in: enter the rates from your own account, as they differ by plan, country and payment method.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a share of the selling price; markup is profit as a share of the cost. A product that costs $10 and sells for $20 has a 100% markup but a 50% gross margin. Confusing the two is one of the most common pricing mistakes.
What is contribution profit?
Contribution profit is what an order leaves after all costs that scale with that order: product cost, shipping, packaging, payment fees, platform fees, expected returns and advertising. It is the amount available to pay fixed costs such as software, salaries and rent, and then to become net profit.
How do I calculate break-even ROAS?
Divide net revenue per order by the contribution profit before advertising. That ratio is the return on ad spend at which advertising exactly uses up the order’s profit. For example, $44.10 of net revenue with $18.56 of contribution before ads gives a break-even ROAS of about 2.38.
Should I include my Shopify subscription in the calculation?
Not per order. A monthly plan fee is a fixed cost that does not change with each sale, so it belongs in your overall profit and loss, not in contribution profit. Per-order app charges, on the other hand, can be entered as other variable costs.
How are payment processing fees calculated?
As a percentage of the total the customer pays (including shipping and any sales tax or VAT) plus a fixed amount per transaction. Enter the rates for your own plan and country from your Shopify admin or payment provider, because they vary and change over time.
How does the calculator handle VAT-inclusive prices?
Choose "Included in prices" and enter the VAT rate. The calculator removes the VAT from the price and the shipping charge to find net revenue, because VAT collected belongs to the tax authority. Fees are still charged on the full VAT-inclusive payment.