How to work out the real margin of each product in your online store
Almost every store works out a product's margin the same way: price minus cost. It is quick and misleading. It leaves out VAT, shipping, returns, the payment gateway fee and advertising, and those costs are not spread evenly: a cheap product that gets returned a lot can earn less than one that looked worse. Here is the full method, step by step, with an example month for two products.
1. The full calculation
A product's real margin over a period is:
Margin = sales excluding VAT of the units that stay sold − cost of those units − their share of shipping − return shipping − their share of the gateway fee − their ads
It is the same calculation we do for an order in how much you really make on each sale, but adding up every order the product appears in. The business's fixed costs (store subscription, accountant, software) are not spread here: they come off once, at the end, from the store's total.
2. Step by step
- Take VAT off the price. VAT is not yours: you collect it and pay it to the Tax Agency. At the Spanish standard rate of 21%, sales excluding VAT are the price divided by 1.21. If the product has another rate, use that one.
- Only count the units that stay sold. If a unit comes back and you refund the money, that sale disappears. If the product comes back in good condition, you also recover its cost; if it cannot be sold again, the cost stays as a loss.
- Subtract the cost of those units: what each one cost you, excluding VAT.
- Spread the shipping. An order with three products has a single shipment. Pick a rule and always use it: by units shipped, by weight or by value. The example uses units.
- Add the return shipping for that product's returns, if you pay it.
- Spread the gateway fee in proportion to each product's sales excluding VAT, because it is charged on the amount.
- Assign the ads. If a campaign advertises a single product, its spend belongs to that product. If not, spread it and note that it is an allocation, not a fact: nobody knows which product «brought in» each order from a general campaign.
3. An example month
The figures are examples. They are not real prices, rates or fees from any company. A store sells two products, both at 21%:
- Candle: €19.90 including VAT, €16.45 excluding VAT, costs €5.20. 120 were shipped and 6 were returned.
- Diffuser: €39.90 including VAT, €32.98 excluding VAT, costs €14.00. 40 were shipped and 4 were returned.
That month, outbound shipping cost €450.00, each return cost €4.00 in return shipping, the gateway charged €95.00 and ads were €400.00 on a candle campaign and €200.00 on a diffuser campaign. The returns came back in good condition.
| Item | Candle | Diffuser |
|---|---|---|
| Units that stay sold | 114 | 36 |
| Sales excluding VAT | €1,875.30 | €1,187.28 |
| Product cost | − €592.80 | − €504.00 |
| Outbound shipping (by units shipped: 120 and 40 of 160) | − €337.50 | − €112.50 |
| Return shipping | − €24.00 | − €16.00 |
| Gateway fee (by sales) | − €58.17 | − €36.83 |
| Ads (its own campaign) | − €400.00 | − €200.00 |
| Margin for the month | €462.83 | €317.95 |
| Margin on sales excluding VAT | 24.68% | 26.78% |
| Margin per unit that stays sold | €4.06 | €8.83 |
With the quick calculation, price excluding VAT minus cost, the candle leaves €11.25 per unit (68.39%) and the diffuser €18.98 (57.55%): the candle looks far better as a percentage. With the full calculation, the diffuser leaves more per unit and more as a percentage too. The candle earns more in total because it sells more, but each candle costs much more to ship and advertise than it seemed.
4. What to do with the result
- Look at the margin per unit, not just the total. A product that sells a lot can hide that each sale leaves little.
- Cheap products suffer more from shipping. Shipping costs about the same for a candle and a diffuser, but it weighs much more on the candle's sale.
- Returns count twice: you lose the sale and pay the return shipping.
- With the margin per unit you know how much you can pay in ads per sale without losing money: we explain it in how much you can spend on ads.
To work out an order with your own figures, use the order profit calculator. And in the Plentia demo you can see the margin per product of an example store.
Sources
- Spanish Tax Agency (AEAT) · VAT rates (in Spanish) · checked on 27/09/2026
- BOE · Law 37/1992 on Value Added Tax (articles 80, 90 and 91) · checked on 27/09/2026