How to Calculate Shopify Profit Margin After Fees, Shipping, Discounts, and Returns

Gross margin is only the first number

Gross margin is product price minus cost of goods sold, divided by product price. It is useful, but it is not the whole profit story. Gross margin is the number your product tells you before shipping, fees, returns, ads, discounts, and packaging walk in carrying tiny knives.

Basic gross margin formula

gross_profit = price - cost_of_goods_sold
gross_margin = gross_profit / price

Contribution profit formula

discounted_revenue = price * (1 - discount_percent)
transaction_fee = discounted_revenue * transaction_fee_percent + fixed_fee
pre_return_contribution_profit = discounted_revenue - COGS - shipping - packaging - transaction_fee - ad_cost - other_cost
estimated_net_contribution_profit = pre_return_contribution_profit - return_drag

Costs Shopify merchants forget

• Payment processing fees.
• Packaging materials.
• Outbound shipping.
• Returns and replacement costs.
• Ad cost per order.
• App costs or other per-order overhead.

Break-even CAC

Break-even CAC is the maximum customer acquisition cost the order can absorb before contribution profit hits zero. If your break-even CAC is lower than your actual ad cost, the product is not scaling. It is just eating drywall with better reporting.

Use the Shopify Profit Margin Calculator to run the full order math.