Marketplace Operations
How to calculate net profit on a marketplace
A practical contribution calculation that includes product cost, marketplace fees, shipping, returns and advertising.
· Digital Department
Separate revenue from profit
The selling price alone does not show whether an order is profitable. Evaluate product cost, marketplace deductions, shipping, packaging, advertising and returns together.
A useful starting point is: order contribution = amount collected − product cost − marketplace and payment fees − shipping and packaging − allocated ad spend − expected return cost. Account for taxes and general overhead separately.
Collect the right inputs
Calculate by product and sales channel. Avoid one blended fee estimate for marketplaces with different terms.
- Purchase or production cost and applicable tax treatment
- Category commission and payment processing charges
- Shipping weight, packaging and free-shipping subsidy
- Discounts and campaign contribution
- Advertising spend, return rate and return shipping cost
Use the result for decisions
Calculate the contribution of each order first, then include monthly fixed costs and your target margin. A positive order contribution can still produce a loss after overhead.
Before changing prices, check your current marketplace agreement and actual order invoices. Commission rates vary by category and contract.