How is profit margin calculated on your own website?
Profit margin is the ratio of net profit to the sales amount excluding VAT. Since there is no marketplace commission on your own e-commerce website, you enter only the rate charged by the payment provider or virtual POS in the commission field; the rest of the calculation is the same.
The formulas used by the calculator, in plain text:
- Net sales = VAT-inclusive price ÷ (1 + VAT rate)
- Net profit = Net sales − commission − service fee − shipping − packaging − product cost − advertising share − returns share
- Profit margin = Net profit ÷ Net sales × 100
- Markup on cost = Net profit ÷ Product cost × 100
For a detailed explanation of the formula, the difference between gross and net margin, and common mistakes, you can read the profit margin calculation guide.
Example: what is the profit margin on a walking shoe?
Consider a walking shoe sold from your own website for ₺2,400 (VAT included, 20%). The payment provider deducts 3% of the VAT-inclusive amount.
| Pens | Amount (₺) |
|---|---|
| Sale price (VAT included) | 2.400 |
| VAT (20%) | −400 |
| Payment deduction (3%) | −72 |
| Product cost | −1.050 |
| Shipping and packaging | −115 |
| Advertising share | −180 |
| Returns share | −40 |
| Net profit (before tax) | 543 |
The amounts in the example are assumptions; by entering your own expenses you will see the same table in the calculator's waterfall chart.
How are the break-even price and the target margin price found?
The break-even price is the VAT-inclusive sale price that exactly covers the fixed expenses and brings profit to zero; the target margin price is the price that leaves the margin you set. Because commission grows with the price, both come out higher than the simple sum of expenses.
Formula: Break-even price = Total expenses ÷ (1 ÷ (1 + VAT) − commission rate). Target margin price = Total expenses ÷ (1 ÷ (1 + VAT) − commission rate − target margin ÷ (1 + VAT)). If the commission is charged on the price excluding VAT, the commission rate is also divided by (1 + VAT).
In the walking shoe example, expenses are ₺1,385. The break-even price is 1,385 ÷ (0.8333 − 0.03) ≈ ₺1,724, and the price needed for a 30% margin is 1,385 ÷ (0.8333 − 0.03 − 0.25) ≈ ₺2,503. In other words, this product falls slightly short of 30% at ₺2,400.
Which expenses affect profit margin the most?
In most e-commerce businesses, after product cost, shipping, advertising and returns shares determine the margin the most; if these three are not calculated per sale, profit looks higher than it really is.
- Shipping: The parcel's volumetric weight (desi) is reflected directly on the shipping invoice; find the real amount with the desi calculator and shipping cost calculator.
- Advertising: Divide the monthly ad spend by the number of units sold; check your limit with the ROAS calculator.
- Returns: Multiply the return rate by the cost per return; a 5% return rate and a cost of ₺300 per return comes to ₺15 per sale.
- Discounts: Before setting a campaign price, see how much the margin will shrink with the discount calculator.
Updated: · Calculations are for information only; consult your accountant for official transactions.