Calculate Real eCommerce Profit Margins
The hidden costs beginners forget when calculating profit margins — and how to calculate unit economics accurately.
The most common financial mistake in dropshipping and online sales is calculating profit with only two numbers: retail price minus purchase price. In reality, several intermediate cost layers exist between gross sales and net cash flow.
Why Simple Subtraction Is Misleading
Suppose you buy a product from a supplier for 15 GEL and sell it on your website for 35 GEL. On the surface, that looks like a 20 GEL profit (nearly 60% gross margin). But before that 20 GEL reaches your pocket, you must subtract:
- Parcel delivery from supplier/courier to the customer.
- Payment gateway processing fee (typically 1.5% - 2.5% of the total retail price).
- Customer acquisition cost (CAC) per unit via ads.
- Returns and damaged goods allowance (estimated at 3-5%).
After these deductions, your 20 GEL "profit" might shrink to 4-6 GEL — or turn negative if customer acquisition costs are unmanaged.
Markup vs. Profit Margin
These two terms are frequently confused:
- Markup: Percentage increase over purchase cost (e.g. buying for 20 GEL and selling for 30 GEL is a 50% markup).
- Profit Margin: Percentage of the retail selling price that represents profit (in the same example, 10 GEL profit / 30 GEL retail = 33.3% margin).
Understanding this difference prevents merchants from overestimating their financial buffer when running marketing campaigns.
Key Cost Elements to Factor In
- Cost of Goods Sold (COGS): The baseline amount paid directly to the supplier per item.
- Shipping Costs: Domestic courier or international air packet rates.
- Payment Processing: Bank transaction fees (TBC, Bank of Georgia, Apple Pay).
- Ad Spend per Order: Total advertising budget divided by total attributed purchases.
- Platform Overhead: Monthly eCommerce hosting and store management subscriptions.
Next Steps
Validate your numbers before running paid ad campaigns. Test your unit pricing in our Margin Calculator on dropship.ge. When your unit economics are profitable and resilient, launch your store on Sellit.ge with 0% sales commission across all plans and a 30-day free trial (source: sellit.ge).