eCommerce Profit Calculator User Guide
Use this profit margin calculator to estimate a product’s profitability after the most common cost factors.
It will also show you estimated monthly income, added brand value, and a target ROAS to achieve for break-even customer acquistion.
Let’s go through each step involved in using the tool.
Step 1: Enter Product Info
Start by entering key information about your product:
- Selling Price: Your current or target selling price before any discounts.
- Monthly Sales: Your estimated monthly sales volume (in units) for this product.
- Estimated Return Rate: The estimated return rate of this product. It’s important to understand the industry average for the niche you’re in, but if you’re unsure, you can set 10% as a good guide. Some stats quote the average to be as high as 19-20% but this can be skewed by the clothing niche.
This calculator assumes a 70% resell rate of returned stock. For example, if you process 10 returns in a month, 7 units would be deemed in ‘as new’, resellable condition.
Step 2: Enter Product Costs
Next, enter the costs you incur to produce and ship your product to you:
- Unit Cost: The total cost you pay to your supplier or manufacturer to have the product produced in dollars.
- Unit Freight Cost: The cost of shipping a unit of product from your supplier to your warehouse or 3PL in dollars.
- Duties: The import duties related to this product, as a percentage. This can be determined by performing a search with a HS code lookup tool.
- Other Costs: Any other costs related to having your product manufactured or shipped to you. This should be input as a percentage in relation to your unit cost. For example, if you order 1,000 units at a total cost of $2,000 and pay $200 for a pre-shipment inspection, you would add 10% here ($200/1,000 = $0.20, 10% of your $2 unit cost.). To keep things simple, you can always leave this field empty.
Once you’ve entered this data you’ll see your:
- Total Landed COGS: The total cost to land a unit at your warehouse or 3PL.
- Markup: The markup from your total landed COGS to your selling price. For example, if you source for $5 and sell for $25 your markup would be 5x your COGS. We recommend aiming for at least 4x to leave enough room for marketing, operational costs, and — of course — profit!
Finally, you can toggle on the discount function. This will activate a slider to select a percentage discount you may offer.
This is useful for determining the viability of a particular promotional offer. You can set all other metrics up then adjust this slider to see the impact it has on your overall profitability.
Step 3: Enter Selling Costs
Finally, enter the costs associated with processing and fulfilling orders on your eCommerce website:
- Platform: Choose the eCommerce platform you’ll be selling on. Different eCommerce platforms have different transaction fees and this determines the next step.
- Transaction Fees: The estimated amount you will pay in payment processing fees for each order. Most platforms charge 2.9% + 0.30c for each order, but this can vary based on payment method and location.
- Fulfillment Costs: The total costs of getting a unit fulfilled and in the hands of your customer. This includes all pick, pack, and send fees your 3PL or warehouse would charge. If shipping from your own residence of office, just include the postal cost and any mailing bags or boxes.
Step 4: Understanding Your Results
Once you’ve entered all the key metrics you’ll be presented with a range of results:
- Net: The estimated net profit from each unit sold.
- Margin: The estimated profit margin on each product sold.
- ROI: The return on investment from the capital invested in your COGS.
- Breakeven ROAS: The Return On Ad Spend figure at which point any paid ads would break even and therefore enable you to acquire new customers at no cost.
- Monthly Revenue: The estimated monthly revenue for this product.
- Monthly Profit: The estimated monthly profit for this product.
- Added Brand Value: An estimated projection of value added to your business by selling this product for 12 months. This is a vastly simplified estimation and, due to the number of variables involved, not a concrete number. The intention is for it to serve as inspiration and to help think long-term about the overall value you are building.
If there is anything unclear of confusing about the tool, please let us know so we can improve it! Happy calculating.
THE ECOM MEMO
Stay eCommerce sharp in 5 minutes per week